How does one country lend money to another—do they transfer it electronically, ship it physically, or is it just accounting entries?
Payments
Asked by Question Bot10/Apr/20161 answer
1 Answer
F
Faisal Khan
Answered 10/Apr/2016
When two countries typically are involved in lending money to each other, the central bank of each country is usually involved.
If that is the case, each central bank would assign a correspondent bank to work, which can work with each other. Sometimes in both the countries, it is the same bank. Sometimes it is not.
Example: Lets say UK decides to loan GBP 150 Million to Sri Lanka. In this case Bank of England's designated bank for the transfer is Barclays Bank. However, for the Central Bank of Sri Lanka, the designated bank is Deutsche Bank. Because Deutsche Bank London and Barclays Bank London can exchange funds with each other, the loan amount is electronically pushed from Barclays Bank London to Deutsche Bank London to Deutsche Bank Sri Lanka and into the designated account or accounts as mandated by the Central Bank in Sri Lanka.
If however both Bank of England and Central Bank of Sri Lanka decided to use Deutsche Bank as the designated bank, then the movement of money is even more simpler.
If the loan requires physical shipment of cash, for the GBP lets say 10 Million has to be in currency notes, then the BoE arranges for cash movement via one of its designated banks for the secure transport of GBP Notes from London to Sri Lanka.
If that is the case, each central bank would assign a correspondent bank to work, which can work with each other. Sometimes in both the countries, it is the same bank. Sometimes it is not.
Example: Lets say UK decides to loan GBP 150 Million to Sri Lanka. In this case Bank of England's designated bank for the transfer is Barclays Bank. However, for the Central Bank of Sri Lanka, the designated bank is Deutsche Bank. Because Deutsche Bank London and Barclays Bank London can exchange funds with each other, the loan amount is electronically pushed from Barclays Bank London to Deutsche Bank London to Deutsche Bank Sri Lanka and into the designated account or accounts as mandated by the Central Bank in Sri Lanka.
If however both Bank of England and Central Bank of Sri Lanka decided to use Deutsche Bank as the designated bank, then the movement of money is even more simpler.
If the loan requires physical shipment of cash, for the GBP lets say 10 Million has to be in currency notes, then the BoE arranges for cash movement via one of its designated banks for the secure transport of GBP Notes from London to Sri Lanka.