Balance of payments

The accounts setting out a country’s transactions with the outside world. They are divided into various sub-accounts, notably the current and capital accountants. The former includes the trading account, which records the balance of imports and exports (see the balance of trade ). Overall, the accounts must always be in balance. A deficit or surplus on the balance of payments refers to the level of purchases or sales of the currency by the national government, usually through its central bank [Law, p. 27]. Balance of payments includes inward and outward foreign direct investment and sales and purchases of foreign securities by residents and domestic securities by non-residents. The third element in the balance of payments changes official foreign exchange reserves. Overall payments, including changes in foreign exchange reserves, must balance by definition, but this is not true for any one category of payments [Black, Hashimzade, Myles, p. 30]. The balance of payments is an accounting device for recording a country's economic transactions with the rest of the world over a given period. over a given period. Although there are no universally accepted categories for constructing the balance of payments, the International Monetary Fund (IMF) has tried to establish a uniform set of criteria. In addition, the IMF's annual publication, Balance of Payments Statistics, is the primary international source of data on the balance of payments [Krieger, p. 25]. A country with a balance of payments deficit must finance it by borrowing from other countries, the International Monetary Fund (IMF), or using foreign currency reserves. Such deficits, if frequent, can pose a serious problem because they cause a reduction in the reserves. This leads to economic pressure for devaluation to correct the imbalance [World Encyclopedia].

Sources:

Oxford Reference. (2004). World Encyclopedia. Retrieved from: https://www.oxfordreference.com/display/10.1093/acref/9780199546091.001.0001/acref-9780199546091

Law, J. (2016). A Dictionary Business and Management (6 ed.) Oxford: Oxford University Press.

Black, J., Hashimzade, N., Myles, G. (2017). A Dictionary of Economics. Oxford: Oxford University Press.

Krieger, J. (Ed.) (2001). The Oxford Companion to Politics of the World (2 ed.) Oxford: Oxford University Press.