Banks & payments
Nostro, vostro and correspondent banking
A cross-border payment feels like one action but is a chain of bookings between banks that hold accounts with each other. Understanding that layer explains why stablecoins and tokenisation get so much attention.
What nostro and vostro mean
A nostro account is 'our account with you': an account bank A holds at bank B, in bank B's currency. A vostro account is the same account seen from the other side.
A Dutch bank that wants to make dollar payments holds dollars in a nostro account at a US bank. Without it, it cannot deliver dollars however many euros it holds.
Those balances cost yield, so liquidity management on nostro accounts is a daily discipline at every sizeable bank.
- Nostro: our account at another bank, in foreign currency
- Vostro: the same account seen by the bank holding it
- Balances cost yield, so banks keep them as tight as possible
Why a payment passes several banks
No bank holds an account with every other bank. Without a direct relationship the payment routes through a correspondent bank that has one with both sides. Each link books, screens and charges.
SWIFT carries the instructions, not the money. Settlement happens in the banks' books and, for euros, ultimately in TARGET2 at the ECB.
Each extra link adds time, cost and a control point — which is why euro area payments can clear in seconds while exotic currency routes take days.
Who does what in a cross-border payment
| Layer | Role | Example |
|---|---|---|
| Messaging | Send the instruction | SWIFT MT/ISO 20022 |
| Accounts | Hold foreign currency balances | Nostro/vostro |
| Correspondent | Bridge when no direct link exists | Large international bank |
| Settlement | Final transfer in central bank money | TARGET2, Fedwire |
What crypto changes here
Stablecoins bypass the nostro layer: the counterparty receives a directly transferable token without a pre-funded balance sitting somewhere.
The flip side is that sanctions screening, source of funds and reporting do not move along automatically; rules such as MiCA place those duties on issuers and service providers.
For investors the practical takeaway is modest but real: the cost and speed of cross-border money are not laws of nature, and whoever shortens that layer monetises a genuine inefficiency.
Recommended by our newsroom
External parties. Block #9 does not hold or manage your assets at these providers. Not investment advice.
Frequently asked questions
Is SWIFT a payment system?
No. SWIFT sends payment instructions; the actual transfer happens through accounts at each other and at the central bank.
Why does my bank charge for international transfers?
Every link books, screens and charges. With several correspondents those fees stack up.
Do stablecoins replace correspondent banking?
For part of the flows, yes — but supervision, screening and liability have to be arranged elsewhere.
Read next
Reading the yield curve
The yield curve, the 2s10s spread and country spreads explained — and what an inverted curve has historically meant for equities and crypto.
Exchange rates and your portfolio
Why EUR/USD quietly makes or breaks your return on bitcoin, US stocks and ETFs — and when hedging is worth it.