How does it work when countries “borrow” money from one another

Question

A Zelle transfer? A check in the mail? Help

In: 1

Answer 1

It’s the same as any other payment and boils down to one or the other:

– move physical tokens (coins, banknotes) between vaults
– trust a central bank to keep track of how much money everyone has

The US Federal Reserve System has a category of accounts called “foreign official” deposits. Those are literally just numbers in a database that say things like “The Treasury of the Republic of France has X dollars in the bank – we are the bank.”

They can use that account to write checks and wire transfers or to order a truckload of banknotes if that’s what they want.