Nostro Account
A nostro account is an account a bank holds in a foreign currency at a bank in that currency’s home market, literally “our account with you.” It is how a bank keeps a working balance in a currency it cannot hold at its own central bank.
Also called: our account with you
Banks cannot hold foreign currency the way a traveler holds foreign cash. A euro balance has to sit somewhere in the euro system and a dollar balance somewhere in the US system. So a bank that needs to pay and receive in a currency it has no direct access to opens an account with a bank that does. From the first bank’s point of view, that is its nostro account.
What the balance is for
The money in a nostro is working capital for settlement. Outgoing payments are funded from it and incoming payments land in it. Too low a balance means payments queue or fail; too high a balance means cash is parked abroad earning nothing. That is why banks watch nostro positions daily and sweep the excess, and why prefunding decisions are a constant operational trade-off rather than a one-time setup.
Reconciling what the account owner believes is in the account against what the holding bank reports is a permanent task, because the two sides see the same entries at different times. The relationship the account sits inside is correspondent banking.
In practice
Nostro and vostro describe the same account from opposite sides of the relationship. If the account is on your books as an asset held at another bank it is a nostro; on that bank’s books the identical account is a vostro. Neither word tells you anything about the account’s terms.
Example
A Pakistani bank holds a US dollar account at a New York bank. On the Pakistani bank’s books that account is a nostro: our dollars, held by you. On the New York bank’s books the same account is a vostro: your dollars, held by us. One account, one balance, two names depending on which ledger is open in front of you.
Commonly confused with
| Term | How it differs |
|---|---|
| Vostro Account | Same account, opposite viewpoint: nostro on the books of the bank that owns the balance, vostro on the books of the bank that holds it. |
| Correspondent Banking | Correspondent banking is the relationship between the two banks; the nostro account is the balance held inside that relationship. |
See also
- Vostro AccountA vostro account is the account a foreign bank holds with a domestic bank in the domestic currency, or “your account with us.” It is the same account a nostro describes, seen from the books of the bank that holds it.
- Correspondent BankingCorrespondent banking is an arrangement in which one bank holds deposits for another bank and makes and receives payments on its behalf, normally so the second bank can reach a currency or a market where it has no branch or license of its own.
- PrefundingPrefunding means placing money with a payout partner or correspondent before transactions are sent, so the partner can release funds locally without waiting for settlement to arrive. The balance is drawn down as payouts are made and topped up before it runs out.
- SettlementSettlement is the point at which value actually moves between parties and the obligation between them is discharged. It is a separate step from clearing, which only works out who owes what, and from finality, which is the moment the transfer can no longer be reversed.
- FloatFloat is customer money sitting with a payment firm between the moment it is received and the moment the beneficiary is paid, together with the working-capital and interest effects of holding that balance. Whether the firm may keep those benefits is set by its regime and its customer terms.
- SWIFT GPISwift GPI is a service layer over existing correspondent banking that gives a cross-border payment a unique reference, end-to-end tracking, fee transparency and agreed service levels between participating banks. It is not a new payment rail, and it does not change how the money moves.