1

Assume there are two separate banks, bank A and bank B. There are also two people: Person A, Person B. They accounts have the following balances:

Person A: 400

Person B: 0.00

Person A in order to get 400 in his bank account has had to go in with physical money and deposit it into his account. Person A now decides to transfer his 400 into person B's account.

This means that digitally, on person A now has 0 and person B has 400, but, bank A still has the physical 400.

How therefore does bank A give the money to bank B?

I assume that they have some kind of courier (like how they deposit into cash machines) -- Is this the case?

3

At this point, a great deal of the world's wealth exists only in electronic form, and just as you can write a check or pay by debit card and trust the banks will handle it, banks can conduct wire transfers" through higher-level banking networks.

In the US, when there is a need to convert physical money to electronic or vice versa, it is typically handled by armored car and armed guard transfer between a bank and the local Federal Reserve Bank office. Physical money is moved around only when necessary, and for as short a distance as possible, to the most secure facilities possible, to minimize risk.

I can't vouch for how it's managed elsewhere in the world, where the networks and repository banks may not be as available. I would presume (I would hope!) that the same general concepts and approaches are followed.

3

This is one of the things that central banks do. For example, see here for a full description of how the Bank of England manages settlements of inter-bank transactions.

  • 1
    would be a better answer if there was a quote from the link. – mhoran_psprep Dec 17 '14 at 14:29

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