The Balance of Payments (BoP) details all transactions that cross a country’s borders. The simplest way to take into account it is really as a record of all payments venturing out to foreigners (with the reasons for those payments), and everything payments getting into the united states from foreigners (with the reason why for those payments). We supply the payments to arrive a plus sign, and the obligations venturing out a minus sign.
There are various ways that these obligations can be grouped and arranged. This dialogue is modified to reflect the categories on your spreadsheets, which use IMF data. Most BoP presentations give you two large categories: a Current Account, which include trade, and a Capital Account, which includes sales and purchases of possessions.
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- Prepaid expenses (expenses paid beforehand)
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Several other kinds of obligations are usually trapped in today’s Account. For a good example of a typical textbook demonstration, see our e-reserve reading on the BoP or this Wikipedia article. The IMF uses this basic department, but the Capital is called by them Account the “Financial Account,” so they have a Current Account and a Financial Account. Fair enough. What’s not fair is they have named one of the more obscure sub-categories of the Financial Account the “Capital Account.” Just what exactly the IMF phone calls the capital account is not what most textbooks call the administrative centre accounts.
Worse, they keep moving it — in the latest group of statistics, their little “capital accounts” moves from the large “financial account” category and into its space between current and financial account. Sigh. Happily, the stuff captured in the IMF’s “Capital accounts” category is normally very small compared to the entire BoP, so for this class, you can almost certainly disregard it.
So below I’m going to follow the demonstration on your spreadsheets, but add description. There are a couple of documents out there on the internet that provide clear explanations of BoP items, so when they have nice wording I estimate them. “The existing account procedures all transactions (other than those in financial possessions and liabilities) that involve financial values and take place between citizen and non-resident entities.
It also contains offsets to current financial values provided or acquired without something of economic value in exchange.” (Central Bank or investment company of New Zealand p. Goods are tangible, real things like steel and wheat and cars. Goods sold to foreigners. They require that foreigners make obligations to us so they take a plus indication.
Macro Note: since exports include total aggregate demand for nationally-produced goods, changes in exports will produce corresponding changes in national income. If other countries’ incomes rise, they’ll likely import more of our goods, raising our exports. In case your country’s exports are dominated by commodities like oil or coffee, they’ll be suffering from swings in the costs of those ordinary things.