A Guide to International Economics by Shahruz Mohtadi

Author:Shahruz Mohtadi
Language: eng
Format: epub, pdf
Publisher: Business Expert Press
Published: 2019-03-15T16:00:00+00:00

The Balance of Payments

The balance of payments is a record of all the transactions between the residents of a country and the rest of the world during a given time period. The primary purpose of the balance of payments is to inform the government of the international economic and financial position of the country and to help it in the formulation of economic policies.

The balance of payments accounts are maintained according to the accounting rules of double-entry bookkeeping. Every international transaction has both a credit and a debit side. Any transaction that leads to a payment by a foreigner to a resident of the country is a credit and is recorded as a positive sign, while any transaction that leads to a payment by a resident of a country to a foreign resident is a debit and is recorded as a negative sign.

From an American perspective, the following transactions that lead to the receipt of dollars from the rest of the world are entered as credits: goods and services exports, income received from investments abroad, gifts received from foreign residents, aid received from foreign governments, and foreign direct and portfolio investments in the United States.

Conversely, the following transactions that lead to a payment of dollars to the residents of the rest of the world are recorded as a debit: imports of goods and services, income paid to foreigners on their investments in the United States, gifts to foreign residents, aid given to foreign governments, and American direct and portfolio investments in other countries.

The balance of payments has three separate accounts: the current account, the capital account, and the financial account.

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