Today, billions of rupees move from one country to another every day in the world. Someone sends money to his family abroad, someone orders goods from another country and someone makes payment to a foreign company. All this happens so easily that we don’t even think about what is going on behind the scenes. For this, such systems have been created all over the world with the help of which this work is made easier.
Actually every country has its own currency. Rupee works in India, Dollar in America, Euro in Europe. When a bank of one country sends money to another country, it cannot go directly because both have different currencies, different laws and different banking systems. To solve this problem, Nostro and Vostro accounts were created. Nostro is a Latin word which means ‘our’ and Vostro means yours.
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One account, two names
For example, State Bank of India has to send money to America but it does not have any office there, so it goes to some American bank. An account is opened there. Deposits dollars into that account. Now State Bank of India will call this account as our account. This is called Nostro account. The American bank with which this account is kept will say that this is your account which we have. This is called ‘Vostro’ account. The account is same. It’s just that the viewers are different, that’s why there are two names.
How does it work?
When someone sends money from India to America, State Bank of India withdraws the money from the same account in America and deposits it in the correct account there. No note moves here and there but simply changes accounts between two banks and the money reaches there.
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What did India do in 2022?
Earlier, whatever transaction took place between India and other countries was in dollars. That means, if any country wanted to do trade with India, it first needed dollars. In 2022, India changed this rule and said that now banks of other countries can open accounts in India in rupees also. This simply means that now any country can do business with India directly in rupees, there is no need for dollars. This was a big step for India as it made the rupee stronger in the world.
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