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?

closed as off-topic by Chris W. Rea, JoeTaxpayer Dec 18 '14 at 10:45

  • This question does not appear to be about Personal Finance within the scope defined in the help center.
If this question can be reworded to fit the rules in the help center, please edit the question.

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

Not the answer you're looking for? Browse other questions tagged or ask your own question.