Nostro account is a bank account held by a bank in foreign currency in another bank. ‘Nostro’ is derived from Latin and it translates to “ours.” This account is basically used to facilitate trade transactions in different currencies and foreign exchange. The opposite of Nostro is Vostro, which translates to “yours” and is the term used by the banks that hold the accounts of other banks in their home currency.
Nostro and Vostro are the same accounts from different sides. The bank that opens a foreign currency account with another bank, calls the account Nostro account while the bank that holds the account of the other bank in its own currency calls it a Vostro account.
Let us understand Nostro and Vostro in brief.
What is a Nostro account?
Most big commercial banks have to open an account in different countries for trade and exchange purposes. The big banks open the account in a local bank in a foreign country and operate in the foreign exchange itself. These accounts are called as Nostro accounts by the big banks.
What is a Vostro account?
The banks in which the commercial banks open their account call these accounts as Vostro account. These local banks deal in their home currency and charge a fee for trade and exchange. Major examples of currencies that are converted across the globe are US dollar, Canadian dollar, British pound, Japanese Yen, and Euro.
Exceptions of the Nostro and Vostro accounts
A number of countries limit the selling and purchasing of their currency in order to control the exchange rates and import/export. Commercial banks generally do not hold Nostro accounts in such countries and cannot get involved in a direct foreign exchange. In absence of the Nostro account, the banks have to have a correspondent relationship with a bank, to make payments on its behalf.
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Difference between a Nostro and a regular account
Nostro and Vostro terms are also used between a bank and its customer as well. When a customer opens an account with a bank, he can call it a Nostro account because the money deposited in the account belongs to him. Similarly, the bank will call this account a Vostro account because it is just holding the money for the customer. The same applies to banks dealing with each other.
There are two main differences between a regular bank account and a Nostro account.
- The Nostro accounts are usually held by commercial banks and other financial institutions while a standard bank account can be held by anyone; an individual, a business, or a charitable trust. In addition, the amount of the money held in these accounts varies largely. Nostro accounts deal in millions and billions while the standard accounts can have any amount of money in them.
- The second major difference between a Nostro and a standard account is that Nostro accounts majorly deal in foreign currencies while most domestic banks use domestic/home currency.
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