Interbank exchange rate: What it is & why it matters

Ever notice that one day your currency seems strong, the next day it’s buying you a little less of everything?

Behind the scenes, banks are constantly swapping currencies at a special “wholesale” price called the interbank exchange rate. It’s the hidden benchmark that determines how much your money is really worth when it crosses borders.

But there’s a catch. 

You rarely get to see it firsthand. 

What you do see, such as the rate your bank or money transfer provider offers you, is almost always different. But once you understand how the interbank system works, you’ll know why that gap exists and what it means for your wallet. 

This knowledge will also help you make smarter choices, whether you’re sending money home, buying something overseas, or planning a trip abroad.

What is the interbank exchange rate?

Think of the interbank rate as the “midpoint” price of money, or the rate at which banks and big financial players swap currencies among themselves.

When Bank A wants to sell U.S. dollars for euros, and Bank B wants the opposite, they trade at this wholesale price. No tourist surcharge, no service fee. Just the pure market rate. That’s why it’s also called the mid-market rate or the true price before anyone adds fees.

Here’s what makes it unique:

• It’s always moving. Currency values fluctuate daily, driven by interest rates, inflation, trade balances, and geopolitical risks. If the U.S. Federal Reserve raises rates, the dollar usually strengthens, nudging the interbank dollar rate upward. 

• It’s only for the big guys. The interbank foreign exchange market is dominated by banks, corporations, central banks, and institutional investors. Unless you’re moving millions, you can’t access this rate directly.

• It’s measured in trillions. According to the Bank for International Settlements¹, the turnover or trading in foreign exchange (FX) processes over $7.5 trillion every day in 2022, making it the world’s largest financial market. 

How does the interbank foreign exchange market work?

Imagine a giant, borderless marketplace that never sleeps. Instead of shouting vendors selling fruit, you’ve got traders and algorithms buying and selling currencies at lightning speed. 

Here’s how this invisible engine of global finance works:

• 24/5 trading. From Sunday night in Sydney to Friday evening in New York, the market is live. When Sydney closes, Tokyo opens; when Tokyo winds down, London takes over. Then, it’s New York’s turn.
• Electronic platforms. Banks and traders connect via systems like EBS and LSEG (formerly Refinitiv). These platforms handle thousands of transactions per second, ensuring quotes are accurate down to the decimal. 
• Liquidity providers. The world’s largest banks, like JPMorgan Chase, Citi, and Deutsche Bank, are liquidity providers. They’re always ready to buy or sell, keeping the interbank FX rates flowing smoothly. 

Central banks sometimes step in to stabilize their national currencies. Corporations use the market to hedge risks, while hedge funds speculate for profit. 

The interbank exchange rate offers benefits for both individuals and businesses. It serves as a benchmark for international transactions and facilitates transparent pricing. 

“But why do exchange rates change?”

Ever asked that question multiple times? Trust us. You’re not alone. If you’ve ever checked a rate in the morning and found it different by evening, you’ve seen the market in action. 

But how do exchange rates work, and why do they keep shifting?

1. Interest rates. Higher interest rates attract investors, boosting demand for that country’s currency.
2. Inflation. Lower inflation usually strengthens a currency because its purchasing power is more stable. 
3. Trade balances. Countries that export more than they import often see stronger currencies.
4. Political stability. Elections and policy changes can shake investor confidence and currency value.

Another factor worth noting is technology. Some currency trades are executed automatically by algorithms. For instance, a report by the Bank for International Settlements² found that five central banks (out of the 15 surveyed) used execution algorithms (EAs). The same report noted that more than half of these central banks used so-called “time-sliced algorithms” for more than 70% of transaction volumes.

These systems can process trades in microseconds, creating efficiency but also volatility. For you, that could mean that exchange rates can move faster than ever. In fast-moving markets, you may see a different rate by the time you confirm your transfer than when you first checked.

Another practical approach is to schedule transfers during times of relative stability. For instance, sending money mid-week (Tuesday through Thursday) often avoids the rate fluctuations that sometimes occur after weekend news cycles or Monday market openings.

Spot rate vs. exchange rate: What’s the difference?

This is one of the most common points of confusion, so let’s break it down clearly.

• Spot rate. The “pure” interbank exchange rate between currencies at a specific moment, or the current rate. For example, as of writing, the exchange rate from euro to U.S. dollar is 1 EUR = 1.1718 USD, according to rates published by the European Central Bank.³
• Retail exchange rate. The rate you actually get when you convert money at a bank, airport, or money transfer provider. For example, 1 EUR = 1.14 USD.

That difference, called the spread, is how providers make money. Some add a clear fee or premium on top, while others fold the cost into the exchange rate itself.

Here’s an example of how interbank rates and retail rates work:

• Interbank rate: 1 USD = 18.71 MXN
• Bank’s retail rate: 1 USD = 17.9320 MXN

On a $1,000 transfer: Your recipient gets 17,932.00 MXN instead of 18,710. That’s a difference of 778 MXN (around 42 USD). 

Multiply that by several transfers a year, and the hidden cost adds up fast. 

Ever wondered why exchange rates are different at banks even though they’re all starting from the same interbank rate benchmark? It comes down to three things:

• Markup strategies. Some banks add wider spreads than others, depending on their business model.
• Operating costs. A community bank with fewer international services may charge higher margins to cover expenses. 
• Scale of transaction. Larger transactions tend to get better rates. Retail or smaller transactions, which often entail smaller amounts, tend to get less favorable rates.

Here’s a tip: Don’t assume your bank is giving you the best deal. Compare the customer rate they quote with the interbank rate today. If the gap is wide, consider switching to a provider like BOSS Money. 

You can also compare rates in real time using aggregator sites or apps. You may be surprised that your local bank’s rate isn’t as competitive as the rates offered by specialized providers.

How does BOSS Money help you get a fairer rate?

So, if you can’t get the raw interbank exchange rate directly, what’s your best option? Choosing a provider that keeps its rates close to wholesale while avoiding hidden fees.

Here’s where BOSS Money makes a difference:

• Competitive exchange rates. Rates stay close to the interbank exchange rate, helping your loved ones receive more.
• Upfront transparency. You’ll always see exactly how much your recipient will get.
• Flexible delivery options. Choose from options like bank deposits, cash pickup, and mobile wallets. Home delivery options are also available in some countries.
• Retail partner advantage. With an extensive network of partner locations, you can send money without a card and use only cash. 
• Community focus. BOSS Money was built with underserved communities in mind, ensuring financial inclusion⁴ and accessibility for people who don’t always have access to traditional banking. 

Here’s an example of how you (and your loved ones) can benefit from using BOSS Money. 
Imagine you’re sending $500 to family in the Philippines. At the interbank rate of 1 USD = 58 PHP, the wholesale value is ₱29,000. A typical bank might offer 56 PHP, giving only ₱28,000. 

With BOSS Money’s competitive pricing, you could get closer to ₱28,922, putting an extra ₱922 (around $16) into your family’s pocket.

Conclusion

You may never trade currencies like a global bank, but knowing how the interbank exchange rate works gives you an edge. You now understand how wholesale exchange rates differ from retail ones, why providers add spreads, and why exchange rates are different at banks. 

The good news is that while you can’t grab the raw interbank rate today, you can still choose a money transfer service that plays fair. With BOSS Money, you get competitive rates, clear pricing, and flexible ways to send funds so more of your money actually reaches home. 

Sources: all third party information obtained from applicable website as of September 16, 2025

1. https://www.bis.org/publ/qtrpdf/r_qt2212f.htm
2. https://www.bis.org/publ/mktc13.pdf
3. https://www.ecb.europa.eu/stats/policy_and_exchange_rates/euro_reference_exchange_rates/html/eurofxref-graph-usd.en.html
4. https://www.globalbankingandfinance.com/how-boss-money-promotes-financial-inclusion-through-international-money-transfers

This article is provided for general information purposes only and is not intended to address every aspect of the matters discussed herein. The information in this article is not intended as specific personal advice. The information in this article does not constitute legal, tax, regulatory or other professional advice from IDT Payment Services, Inc. and its affiliates (collectively, “IDT”), and should not be taken or used as such by any individual. IDT makes no representation, warranty or guaranty, whether express or implied, that the content in this article is current, accurate, or complete. You should obtain professional or other substantive advice before taking, or refraining from, any action on the basis of the information in this article.