Nostro AccountExplained & Defined

Written By:
Lisa Borga

A Nostro account is an account held by one bank in another bank in its home currency.

The word Nostros comes from a Latin word meaning ours.

Nostro accounts are typically used to make trade transactions or foreign exchange transactions easier.

There are also Vostro accounts, which are basically the opposite of Nostro accounts.

Vostro accounts are the accounts that one bank holds for another bank in the holding bank’s home currency.

Vostro comes from a Latin word meaning yours.

Explaining Nostro Accounts

Nostro accounts and Vostro accounts are the same accounts but are seen from a different point of view.

As an example, suppose Bank A holds an account in Bank B in bank B’s home currency.

For bank A, this account would be a Nostro account.

Whereas, for bank B, it would be a Vostro account.

Nostro accounts help simplify international transactions as well as settle transactions that safeguard against exchange rate fluctuations.

Nostro Account Example

Here is an example of how to make a payment with a Nostro account.

A bank in Canada, Bank 1, decides to participate in a foreign exchange spot contract to purchase Japanese yen from Bank 2 in Japan.

When the settlement date arrives, Bank 2 will need to send Japanese yen from the Nostro account it has in Japan to the Nostro account of Bank 1, which is in Japan.

Bank 1 must pay Canadian dollars in Canada to Bank 2’s Nostro account on this same day.

Certain Circumstances

In a number of developing countries, the central banks will place limits on the purchase and sale of their currencies in order to control exports and imports as well as exchange rates.

Therefore, banks typically don’t have Nostro accounts in these developing countries since the banks generally have very little if any foreign exchange business.

If a bank wants to arrange a payment in a country that it does not have a Nostro account in, it can have a bank that it maintains a correspondent relationship with making the payment for it.

Key Takeaways

• A bank that holds a Vostro or Nostro account is also known as a facilitator bank.
• Nostro accounts are different than basic deposit accounts as they are held in a foreign currency.
• Nostro accounts make trading and exchanging in a foreign currency easier.
• Before the Euro, banks needed a Nostro account in each of the countries that are now in the Eurozone. However, with the Euro, one Nostro account is good for the whole Eurozone. Although, if a country leaves the Eurozone, a bank would then need to set up a Nostro account in that country.
• Typically, large commercial banks will have a Nostro account in every country.
• The British pound, the euro, the dollar, the Japanese yen, and the Canadian dollar are all prominent examples of convertible currencies.