What banks do with foreign currency they get?
very simply, when a country imports goods, and pay in foreign currency ($), what happens to the domestic currency, as the same amount will still be in circulation, but you have just put ur money in ur own countrys bank, and took dollars to pay some. or does the bank get rid off (destorying) the same value in domextic currency, as you changed your money into dollars to pay someone abroad? to put it simple im from UK, i buy something from USA, i go to my bank give them £10 and they give me $20. i pay $20 to USA, BUT my £10 is still in my country!! is that correct? or will the bank destory my £10, as ive changed it and its still in the UK. and too much money would be around. or is it something totally different?
Public Comments
- Eventually that foreign currency will either a) make its way back to the country of origin, because someone like you needs to buy something from that country and needs the local currency, or b) will be held as a reserve. Many countries hold foreign currency as part of their reserves (USD and Euros are the most popular). The bank does not destroy your £10 note - the amount of money in the bank has not changed, they simply now have £10 instead of $20USD.
