The balance of payments, (or BOP) measures the payments that flow between any individual country and all other countries. It is used to summarize all international economic transactions for that country during a specific time period, usually a year. The BOP is determined by the country's exports and imports of goods, services, and financial capital, as well as financial transfers. It reflects all payments and liabilities to foreigners (debits) and all payments and obligations received from foreigners (credits). Shortcut: WP:-( Vandalism is indisputable bad-faith addition, deletion, or change to content, made in a deliberate attempt to compromise the integrity of the encyclopedia. ... Shortcut: WP:-( Vandalism is indisputable bad-faith addition, deletion, or change to content, made in a deliberate attempt to compromise the integrity of the encyclopedia. ... A payment is the act of transfering wealth into another person or company. ... In political geography and international politics, a country is a political division of a geographical entity, a sovereign territory, most commonly associated with the notions of state or nation and government. ... This article needs additional references or sources for verification. ... A good or commodity in economics is any object or service that increases utility, directly or indirectly, not be confused with good in a moral or ethical sense (see Utilitarianism and consequentialist ethical theory). ... Wikibooks has more about this subject: Marketing In economics and marketing, a service is the non-material equivalent of a good. ... In brief, financial capital is money used by entreprenuers and businesses to buy what they need to make their products (or provide their services). ... In political science and economics, a transfer payment is a payment of money from a government or any other organization to an individual, a group or another order of government for which no good or service is directly required in return. ... In the most general sense, a liability is anything that is a hindrance, or puts individuals at a disadvantage. ... link title Debit is an accounting and bookkeeping term that comes from the Latin word debere which means to owe. ... Credit is a formal bookkeeping and accounting term that comes from the Latin word credere, which means to believe. The opposite of a credit is a debit. ...

Components

     countries in current account surplus (2005)      countries in current account deficit (2005)

The Balance of Payments for a country is the sum of the current account, the financial account (formerly capital account), and the change in official reserves. Image File history File links Download high resolution version (1353x641, 47 KB) Summary Current account balance world figures, from CIA factbook, accessed April 2006 Red = deficit (more imports than exports) Blue = surplus (more exports than imports) Grey = no data Licensing File links The following pages link to this file: Balance... Image File history File links Download high resolution version (1353x641, 47 KB) Summary Current account balance world figures, from CIA factbook, accessed April 2006 Red = deficit (more imports than exports) Blue = surplus (more exports than imports) Grey = no data Licensing File links The following pages link to this file: Balance... Blue = countries in current account surplus; Red = countries in current account deficit, 2005 The current account of the balance of payments is the sum of the balance of trade (exports less imports of goods and services), net factor income (such as interest and dividends) and net transfer payments (such as... This article or section does not cite its references or sources. ... The capital account is one of two primary components of the balance of payments. ...

[Note: The name of the "capital account" was changed in the US in 1999. It is now referred to as the financial account. ^[1]]

Current account

The current account is the sum of net sales from trade in goods and services, net factor income (such as interest payments from abroad), and net unilateral transfers from abroad. Positive net sales from abroad corresponds to a current account surplus; negative net sales from abroad corresponds to a current account deficit. Because exports generate positive net sales, and because the trade balance is typically the largest component of the current account, a current account surplus is usually associated with positive net exports.

The Income Account or Net Factor Income, a sub-account of the Current Account, is usually presented under the headings "Income Payments", as outflows, and "Income Receipts", as inflows. If the Income Account is negative, the country is paying more than it is taking in interest, dividends, etc. For example, the United States' net income has been declining exponentially since it allowed the Dollar's price relative to other currencies to be determined by the market to a point where income payments and receipts are roughly equal. The difference between Canada's Income Payments and Receipts have been declining exponentially as well since its' central bank in 1998 began its' strict policy not to intervene in the Canadian Dollar's foreign exchange. The various subcategories in the Income Account are linked to specific respective subcategories in the Financial account. From here, economists and central banks determine implied rates of return on the different types of capital exchanged in the Financial Account. The United States, for example, gleans a substantially larger rate of return from foreign capital than foreigners from domestic capital. United States one-dollar bill Canadian one-dollar coin (Loonie) One New Taiwan dollar Australian one-dollar coin 500 old Zimbabwean dollars The dollar (often represented by the dollar sign: $) is the name of the official currency in several countries, dependencies and other regions. ... Foreign exchange has several meanings: In telecommunications, Foreign exchange service is a type of network service. ... This article or section does not cite its references or sources. ...

When analyzing the current account theoretically, it is often written as a function X of the real exchange rate, p, domestic GDP, Y, and foreign GDP, Y*. Thus the current account can be written as X(p, Y, Y*). According to theory, the current account X should increase if (1) the domestic currency depreciates (p increases), (2) domestic GDP decreases, or (3) foreign GDP increases. A domestic currency depreciation makes domestic goods relatively cheaper, boosting exports relative to imports. A decrease in domestic GDP reduces domestic demand for foreign goods, lowering imports without affecting exports. An increase in foreign GDP increases foreign demand for domestic goods, increasing exports without affecting imports. Graph of example function, The mathematical concept of a function expresses the intuitive idea of deterministic dependence between two quantities, one of which is viewed as primary (the independent variable, argument of the function, or its input) and the other as secondary (the value of the function, or output). A...

Current account =

• Trade Balance
  • Net Exports (Exports - Imports) of Merchandise (tangible goods)
  • Net Exports (Exports - Imports) Services (such as legal and consulting services)
• + Net Factor Income From Abroad (such as interest and dividends)
• + Net Unilateral Transfers From Abroad (such as foreign aid, grants, gifts, etc.)

Capital account

The capital account used to entitle the section now familiarly known as the financial account. This section usually includes special debt transactions between nations and migrants' goods as they cross a country's borders. This article or section does not cite its references or sources. ...

Official reserves

The official reserve account records the government's current stock of reserves. Reserves include official gold reserves, foreign exchange reserves, and IMF Special Drawing Rights (SDRs). Reserve accounts typically are dominated by monetary authority intervention in the official currency's exchange rate. // Gold ingots, like these from the Bank of Sweden, form the base of many monetary systems Gold reserves (or gold holdings) are held by central banks as a store of value. ... Foreign exchange reserves are the foreign currency deposits held by central banks and monetary authorities. ... The flag of the International Monetary Fund (IMF) The International Monetary Fund (IMF) is the international organization entrusted with overseeing the global financial system by monitoring foreign exchange rates and balance of payments, as well as offering technical and financial assistance when asked. ... Special Drawing Rights (SDRs) is a potential claim on the freely usable currencies of International Monetary Fund members. ...

Countries who try to control the price of their currency will have large net changes in their Official Reserve Accounts. Some of the most extreme examples include China and Japan. Japan in particular recently had a change in its reserves approximately one half of the entire net reported Balance of Payments. In 2003 and 2004, Japan had an outflow of reserves, yen, by more than equivalently one third of one trillion US Dollars. Japanese 10 yen coin (obverse) showing Phoenix Hall of Byodoin Yen is the currency used in Japan. ...

In general, net increases in the Official Reserve Account will indicate that a country is buying its currency to try to keep the price dear relative to whatever resource they are selling in exchange for the currency. Countries with net decreases in the Official Reserve Account are usually attempting to keep the price of their currency cheap from the perspective of whatever resource is being acquired in exchange for the currency.

Some countries are much more difficult to detect in this regard. The United Kingdom is a good example. Its net changes in the Official Reserve Account are small, but this is because the monetary authorities of the UK borrow from one source, principally the IMF and its SDR reserve, to buy back pounds in the form of bonds and money market accounts. This interesting example can be found in Section 7.9 in the Pink Book. The annual publication from the government of the United Kingdom that details the countrys balance of payments. ...

Financial account

The financial account is the net change in foreign ownership of domestic assets. If foreign ownership of domestic assets has increased more quickly than domestic ownership of foreign assets in a given year, then the domestic country has a financial account surplus. On the other hand, if domestic ownership of foreign assets has increased more quickly than foreign ownership of domestic assets, then the domestic country has a financial account deficit This article or section does not cite its references or sources. ...

The accounting entries in the financial account record the purchase and sale of domestic and foreign assets. These assets are divided into categories such as Foreign Direct Investment (FDI), Portfolio Investment (which includes trade in stocks and bonds), and Other Investment (which includes transactions in currency and bank deposits).

Financial account =

• Increase in foreign ownership of domestic assets
• - Increase of domestic ownership of foreign assets

Balance of Payments Identity

The Balance of Payments is the sum of the Current Account and the Capital Account. The Balance of Payments Identity states that: In accounting, an identity is an equality that must be true regardless of the value of its variables, or a statement that by definition (or construction) must be true. ...

Current Account + Capital Account = Change in Official Reserve Account

Typically, in the United States, the change in official reserves in a given year is small relative to the Current Account and the Capital Account. Therefore it is sometimes approximated as zero. For example, if a government runs a current account deficit and has no change in official reserves, then the current account deficit must be balanced by a capital account surplus. The basic principle behind the identity is that a country can only consume more than it produces (a current account deficit) if it borrows from abroad (a capital account surplus). The United States has been carrying a negative current account balance for many years, and this debt has been primarily financed by issuing securities. This interpretation of the data, however, is disputed by Milton Friedman (Balance of Trade) claiming that cheaper, riskier, foreign capital is exchanged for "riskless", expensive, US capital and that the difference is made up with extra goods and services. Nevertheless, Friedman's interpretation is incomplete with respect to countries that interfere with the market prices of their currencies through the changes in their reserves. Milton Friedman (July 31, 1912 – November 16, 2006) was a prominent American economist and public intellectual. ... The balance of trade encompasses the activity of exports and imports, like the work of this cargo ship going through the Panama Canal. ...

A country will have a negative balance of payments (a net decrease in official reserves) if the net of the current account and the capital account is a deficit. Similarly, there will be a positive balance of payments (a net increase in official reserves) if the net of the current and the capital account results in a surplus.

Balance of Payments Equilibrium

A Balance of Payments Equilibrium is defined as a condition where the sum of debits and credits from the Current Account and the Financial Account equal zero; in other words, equilibrium is where

Current Account + Financial Account = 0

This is a condition where there are no changes in Official Reserves.

History

Historically these flows simply were not carefully measured, and the flow proceeded in many commodities and currencies without restriction, clearing being a matter of judgement by individual banks and the governments that licensed them to operate. Mercantilism was a theory that took special notice of the balance in payments and sought simply to monopolize gold, in part to keep it out of the hands of potential military opponents (a large "war chest" being a prerequisite to start a war, whereupon much trade would be embargoed). In banking and finance, clearing denotes all activities from the time a transaction is made until it is finally settled (see settlement). ... “Banker” redirects here. ... A painting of a French seaport from 1638, at the height of mercantilism. ... General Name, Symbol, Number gold, Au, 79 Chemical series transition metals Group, Period, Block 11, 6, d Appearance metallic yellow Standard atomic weight 196. ...

As mercantilism gave way to classical economics, these crude systems were later regulated in the 19th century by the gold standard which linked central banks by a convention to redeem "hard currency" in gold. After World War II this system was replaced by the Bretton Woods institutions (the International Monetary Fund and Bank for International Settlements) which pegged currency of participating nations to the US dollar, which was redeemable nominally in gold. In the 1970s this redemption ceased, leaving the system without a formal base. Some consider the system today to be based on oil, a universally desirable commodity due to the dependence of so much infrastructural capital on oil supply. Since OPEC prices oil in US dollars, the US dollar remains a reserve currency, but is increasingly challenged by the euro, and to a small degree the Japanese yen. Classical economics is widely regarded as the first modern school of economic thought. ... Alternative meaning: Nineteenth Century (periodical) (18th century — 19th century — 20th century — more centuries) As a means of recording the passage of time, the 19th century was that century which lasted from 1801-1900 in the sense of the Gregorian calendar. ... The gold standard is a monetary system in which the standard economic unit of account is a fixed weight of gold. ... Combatants Allied powers: China France Great Britain Soviet Union United States and others Axis powers: Germany Italy Japan and others Commanders Chiang Kai-shek Charles de Gaulle Winston Churchill Joseph Stalin Franklin Roosevelt Adolf Hitler Benito Mussolini Hideki Tōjō Casualties Military dead: 17,000,000 Civilian dead: 33,000... Wikipedia does not have an article with this exact name. ... This article needs additional references or sources to facilitate its verification. ... BIS Headquarters in Basel The Bank for International Settlements (or BIS) is an international organization of central banks which exists to foster cooperation among central banks and other agencies in pursuit of monetary and financial stability. It carries out its work through subcommittees, the secretariats it hosts, and through its... The United States dollar is the official currency of the United States. ... The 1970s decade refers to the years from 1970 to 1979. ... Pumpjack pumping an oil well near Lubbock, Texas Ignacy Łukasiewicz - inventor of the refining of kerosene from crude oil. ... Infrastructural capital refers to any physical means of production or means of protection beyond that which can be gathered or found directly in nature, i. ... Crude oil is a finite resource. ... OPEC Logo The Organization of the Petroleum Exporting Countries (OPEC) is an international cartel[1][2] made up of Iraq, Indonesia, Iran, Kuwait, Libya, Angola, Algeria, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. ... A reserve currency (or anchor currency) is a currency which is held in significant quantities by many governments and institutions as part of their foreign exchange reserves. ... “EUR” redirects here. ...

See also

• Current account
• Capital account
• Balance of trade
• Floating currency
• List of countries and territories by current account balance
• International investment position
• Foreign exchange reserves
• Sovereign wealth funds
• Money supply
• United States public debt
• Pink Book
• Milton Friedman

Blue = countries in current account surplus; Red = countries in current account deficit, 2005 The current account of the balance of payments is the sum of the balance of trade (exports less imports of goods and services), net factor income (such as interest and dividends) and net transfer payments (such as... The capital account is one of two primary components of the balance of payments. ... The balance of trade encompasses the activity of exports and imports, like the work of this cargo ship going through the Panama Canal. ... A floating currency is a currency that uses a floating exchange rate as its exchange rate regime. ... This is a list of countries and territories by current account balance in U.S. dollar equivalence. ... A countrys international investment position is the result of its financial account in the balance of payments. ... Foreign exchange reserves are the foreign currency deposits held by central banks and monetary authorities. ... Sovereign wealth fund (SWF) (Sovereign wealth funds) is a fund owned by a state composed of financial assets such as stocks, bonds, property or other financial instruments. ... This article or section does not cite any references or sources. ... The history of the United States national debt, relative to gross domestic product, since 1900. ... The annual publication from the government of the United Kingdom that details the countrys balance of payments. ... Milton Friedman (July 31, 1912 – November 16, 2006) was a prominent American economist and public intellectual. ...

References

1. ^ Upcoming Changes in the Classification of Current and Capital Transactions in the U.S. International Accounts from BEA

External links

Data

• IMF DSBB
  • United States DSBB (See "External Sector")
• BEA U.S. International Transactions Accounts Data
• BEA U.S. International Transactions Accounts Data Help
• Balance of Payments in Hong Kong

You can also download historical balance of payments information from 1960 under the "All Tables" link of the following page:

• BEA Balance of Payments Section

• OECD Main Economic Indicators A cross-country comparison of several economic indicators, including balance of payments.