What is Nostro and Vostro Account

Nostro and Vostro accounts are two types of bank accounts used in international banking transactions. These terms originate from Latin, with Nostro meaning “our” and Vostro meaning “your”. In this article, we will discuss the meaning and differences between these two types of bank accounts.

What is a Nostro account?

A Nostro account is a bank account that a bank holds in a foreign currency in another bank. These accounts are maintained by banks to facilitate their foreign currency transactions. Nostro accounts are used by banks to hold funds that belong to their customers in other countries. These accounts are denominated in the currency of the foreign country where the account is held. Banks use Nostro accounts to receive and make payments in foreign currencies.

For example, if Bank A in the United States has a customer who wants to make a payment to a supplier in Japan, Bank A would use its Nostro account in Japan to make the payment in Japanese yen. The funds would be transferred from the customer’s account in Bank A to Bank A’s Nostro account in Japan, and then Bank A would use these funds to make the payment to the supplier in Japan.

What is a Vostro account?

A Vostro account is a bank account that is held by a foreign bank in the local currency of the country where the account is held. Vostro accounts are maintained by banks to facilitate transactions with their international customers. These accounts are used by banks to hold funds that belong to their customers in the local currency of the country where the account is held. Banks use Vostro accounts to receive and make payments in local currencies.

For example, if Bank A in the United States has a customer who wants to receive a payment from a supplier in Japan, Bank A would give its Japanese partner bank permission to open a Vostro account with Bank A. The supplier in Japan would transfer the payment in Japanese yen to Bank A’s Vostro account in Japan. Bank A would then credit the payment to its customer’s account in the United States in US dollars.

Differences between Nostro and Vostro accounts

The main difference between Nostro and Vostro accounts is that Nostro accounts are held by a bank in a foreign country, denominated in the currency of the foreign country, and used to facilitate its transactions in that country. On the other hand, Vostro accounts are held by a foreign bank in the local currency of the country where the account is held, used to facilitate transactions with the bank’s international customers.

Another difference between Nostro and Vostro accounts is the ownership of the account. A Nostro account is owned by the bank that holds the account, while a Vostro account is owned by the foreign bank that opened the account.

A Nostro Account of one country can be a Vostro Account for another country, and vice versa