Say that I am located in Country X and I buy something from Country Y. I pay using my debit card, and money is deducted from my bank account.
How does the money actually flow to Country Y? What does the process look like?Do banks fly bags of cash over to one another of each month?
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Banks own accounts known as Vostro and Nostro accounts at other banks throughout the world and have what are called correspondent banking relationships.
So if you’re in say Canada and want to Send Money to a Bank in Austria, it may take a few bounces.
It’s likely your Canadian bank has an account with a big German bank where they hold Euros, and the German bank has a relationship with the Austrian bank.
So You bank takes your money, charges you FX, then instructs the German bank to send some Euros to the Austrian bank.
Then periodically, they do transfer money to and from those accounts to refill them or empty them.
This can be done by moving it electronically between accounts sometimes, buying currency on markets or…yes, a lot of times banks do indeed physically fly money to the other country.
You’ve probably seen in heist movies and stuff the idea of just planes totally loaded with physical currency, and yes that happens.
That’s particularly a thing in countries that deal with a lot of US Dollars or Euros but where that’s not their local currency.
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