How does international money transfer works?
i am talking about wire transfer between two international banks (ie transferring money from one country to another). as far as i am aware the process goes like this (simplified): 1- the sending bank needs to have an account with the receiving bank (or have an account with another bank that already has a bank with the receiving bank). 2- the sending bank debit the account of the applicant (client who wants to sends the money) 3- the receiving bank debit the account of the sending bank (held with the receiving bank) then credit the account of the recipient client (the person asking for the money) all this is fine, everything so far is done electronically and recorded on the books. my question is, if someone is sending $1000 from south africa to another person in finland, does the money eventually physically move from south africa to finland? and how? does the sending bank hire a plane or ship to do so? or is this part of the central bank's job? it can not be all done electronically! at some point (end of fiscal year maybe?) money has to physically move around, hasn't it? i assume the banks must make settlements between each other .. but how? again .. is it through the central bank of the country? do central banks work together and exchange money on an international level? i feel i am missing something here. any way thanks for your answer if you already know :)
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All Banks are maintaining Nostro and Vostro accounts with selected foreign Banks. They maintain account only in important city of a country. For example an Indian Bank maintain account with a USA Bank in New York. Similarly that Bank will have an account with the same Indian Bank in any one of the important centers like Mumbai or Chennai. When an Indian Bank remits money on behalf of his customer, they debit his account and credit USA Bank account with their bank in India and request to remit the money to the beneficiary at USA through their branch or any other Bank with whom they have arrangement. The amount is settled through their Nostro and Vostro accounts. In India an Indian Banks account with foreign Bank is known as Nostro account and the foreign Banks account in India with Indian Bank is known as Vostro account.
