I’ve always been curious about how countries manage their financial transactions with each other. When one country needs to transfer a significant amount of money to another country (let’s say for aid, debt payments, or purchasing goods), how does that actually work?
Do they use some sort of giant bank account and send money over like we do with online banking, or is it more like adjusting numbers on a ledger and saying “you owe me less now”?
The whole process seems so abstract and complex compared to personal banking. Can someone explain this in a simple way.
In: Economics
it can work in many ways, depending on the exact aid being sent. If they are literally sending money then its just a very large account transaction, or creating a new account with the money in it and giving the other side access to it, but a lot of the time, its either physical goods being shipped, or some form of “store credit” where the money is spent buying goods inside the issuing country on the aid providers dime.
it IS complex compared to personal banking, but thats because governments are more complex, and their revenue streams are equally complex.
Depends.
Many countries (36 foreign governments) hold gold in the Gold Vault of the Federal Reserve Bank of New York.
It’s convenient for them to pay each other as they just move gold from one pile to another without it ever having to leave the building.
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