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In general, BOPs(without taking the official reserves account into consideration( aren't balanced. A BOP surplus is generally a good sign if the correct goods and being exported and a BOP deficit is genrally a bad thing. However, I'm unable to find what is the outcome of a perfectly balanced BOP. Is it desirable? If so, why?

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  • $\begingroup$ Are you sure you mean the BOP, not the current account or even trade balance? $\endgroup$
    – BrsG
    Sep 20, 2022 at 19:24

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I think you are thinking of the current account?

Neither direction of imbalance is generally desirable.

A current account deficit means you owe goods and services to other countries, which is bad because people in your country will have to produce them for little gain.

A current account surplus is also bad, because it means your country didn't receive all the goods and services it was "entitled" to receive from other countries. And inflation will erode the value of that surplus, so in the end, you won't receive as much as you could have.

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  • $\begingroup$ I am not sure I agree. A country can optimally run a deficit if deficit financing is being used to invest in productive assets. Conversely, a country can run a surplus and generate foreign savings (interest payments) to insure itself against negative shocks in the future for instance. It is much the same as borrowing and saving for individuals. $\endgroup$ Sep 19, 2022 at 19:59
  • $\begingroup$ @KwameBrown then, it's only tolerated because you want to get back to balance in the future. Yes, it's the same as individual borrowing and saving. $\endgroup$ Sep 19, 2022 at 20:10
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    $\begingroup$ I think you are confusing the BOP with the current account. The BOP is a wider concept. Also a deficit does not mean you owe specifically goods or services to other countries, but generally it means the country accumulates debt with respect to the rest of the world. $\endgroup$
    – BrsG
    Sep 20, 2022 at 12:42
  • $\begingroup$ @BrsG oops, you are right - this is current account; BOP is zero by definition (any nonzero value is a measurement error). Debt does mean goods or services are owed; often one debt can be traded for another debt but at the end of the day it's settled with goods and services. $\endgroup$ Sep 20, 2022 at 15:00
  • $\begingroup$ now I'm not sure if it's current account, either, rather than something like balance of trade... $\endgroup$ Sep 20, 2022 at 15:23

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