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Balance of payment under double entry bookkeeping

Assume that during a certain period, Taiwanese residents engage in the following three economic transactions with foreign residents: A. Taiwan exports $3 million worth of goods to the United States, ...
Arren Zhou's user avatar
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Questions about current account plus financial account=0 and balance of payment deficit

If current account (CA) plus financial account (FA) always equal 0 under the double entry bookkeeping, then how does balance of payment deficit occur?
Arren Zhou's user avatar
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Surplus in the Financial Account - BoP

As a student I am trying to understand the BoP dynamics resulting from a net inflow in the financial account (FA) of a country. Assuming a country has a Current Account (CA) deficit of -50. CASE1: if ...
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Could the IMF hypothetically end all balance of payments crises?

Ok, so my understanding of balance of payments crises is when a country (who might be doing completely fine otherwise) doesn't have enough foreign currency (typically dollars) to pay back debt. If the ...
Daycent's user avatar
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why am i getting contradictory changes in the current account balance for a change in interest rates?

CAB = X - M + NI GDP = C + I +G + X - M GNI = C + I + G + CAB S = GNI - C - G S = I + CAB CAB = S - I If interest rates are to rise you would expect rising savings and falling investment (S-I) leading ...
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1 answer
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BOP balancing to 0, use of capital and financial account

Please someone for the love of god help me. I can't find two sources on the internet that don't have conflicting or very difficult to understand information on the balance of payments. I have various ...
Daniel Rübenacker's user avatar
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How does a country with lesser exports than imports get the foreign exchange to fund the excess?

Let's take a developing country. Assume it's exports, tourism revenue, repatriation by workers working abroad all totally contribute 100$ of forex for the country per year. And it's imports are 110$. ...
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3 votes
1 answer
311 views

Was the council bill system used in British India a wealth extraction mechanism?

Jason Hickel says that the council bill system used to pay exporters of Indian goods during the British Raj was a mechanism by which Britain extracted wealth from India without giving India anything ...
Edward H's user avatar
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Is a balanced BOP (without taking the official reserves account into consideration, desirable in the real world?

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 ...
math and physics forever's user avatar
2 votes
1 answer
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What does Milton Friedman mean by - "if they sell things to us in dollars then they are going to spend those dollars back here" (link below)

https://www.youtube.com/watch?v=fkHdq_2EUk4&ab_channel=FreeToChooseNetwork I'm currently studying international trade at the undergraduate level. I feel like I should understand this, but Milton ...
Toby Meyrick's user avatar
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How does high external debt hurt GDP?

Really confused by this. Say debt burdens increase and country A now has to spend more of its income towards servicing its debt to country B, causing a fall in consumption. Country B now has more ...
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The gold standard and trade imbalances

I’ve recently come across a paper which states that trade imbalances during the gold standard caused outflows/inflows of gold from the country running the trade surplus/deficit thus securing balanced ...
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1 answer
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If the BOP is always equal to 0 then why would a trade imbalance cause currencies to fluctuate?

I am a bit confused in interpreting the correlation between a trade deficit/surplus & currency depreciation/appreciation. Considering BOP always equals 0 and a outflow in the current account is ...
ThomasJ's user avatar
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2 votes
4 answers
161 views

Are there any benefits of moderate devaluation of a currency?

The value of Indian rupee has decreased over the years. The government apparently makes no effort to stop or reverse it. Instead they focus on other aspects of development. Observation 1- I see that ...
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Does a high current account deficit ALWAYS have to increase net foreign debt/equity?

My book states a higher CAD necessarily increases net foreign debt/net foreign equity, and I'm a bit confused by this assertion. See, I can understand how a higher current account deficit may ...
Sam's user avatar
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Can anyone explain why the Swiss balance of payments is not balanced (real data)?

While doing a little research I went to the Swiss National Bank's website and downloaded their data on the Swiss balance of payments. The data is here: https://data.snb.ch/en/topics/aube#!/cube/...
Studi's user avatar
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Does a high current account deficit devalue the national currency?

I've been reading some materials about Belarus's 2011 financial crisis, and a common thread among them is this: Belarus had had a rapidly growing current account deficit, and in 2011 it came to a head ...
Sergey Zolotarev's user avatar
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Where in the BOP does the rental of a building appear?

Say a Japanese citizen (living and working in Japan) owns a house in the US and rents it out (to a US resident) for \$10,000 in 2020. (Assume the value of the land is negligible.) Where in the US BOP ...
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2 answers
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Balance of Payment (BPM6) - Direct Investment: how to record

I have a question related to recording in BOP Let say we have two countries: DOMES (domestic country) EXT (external country) a company in EXT invest a new factory in DOMES. I don't know how this ...
PTQuoc's user avatar
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1 answer
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What are some reasons why CEOs make 200-1000x as much as post PhD researchers?

Even the most monetarily effective Post PhD Researchers make at most a couple of million dollars over the course of their careers, whereas CEOs can earn over 1000x more over the course of theirs even ...
Ethan's user avatar
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0 answers
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Unilateral transfers in the balance of payments

In the secondary income account, unilateral transfers like unconditional foreign aid are recorded but aren't every transaction double-entry to make the balance of payments equal 0. What is the other ...
Mmloiler's user avatar
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Gap between BOP and macroeconomic terminologies (In my opinion)

I have not studied BOP well, but as far as i can understand, there is a mismatch between BOP and macroeconomics terminologies. In BOP we say that capital outflow (inflow) occures when finacial account ...
Maksim Tarasenko's user avatar
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1 answer
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on the FRED website where do i find definitions of the variables they give charts of?

eg M3? how can we see precisely how it is defined, measured? https://fred.stlouisfed.org/series/MABMM301USM189S?fbclid=IwAR1lwaCbKUX16L1meOk6iZvloYOW0F7pIjmq9I4sb5VfvhhLhj8lsVTlpxg
Randor's user avatar
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2 votes
2 answers
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How are trade deficits financed?

The usual answer is either "foreign debt" or "Foreign Direct Investment". But: Why does that make sense? And why wouldn't be financed otherwise like from importers taking out bank loans domestically ...
Metrician's user avatar
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1 answer
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Sources of data for GDP and BoP accounts

When an American buys a coffee within the US, how does that 3.50 dollars worth of consumption expenditure make it's way to the US GDP account? Is the information obtained from the company's tax ...
ColorStatistics's user avatar
1 vote
0 answers
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Why a Current Account deficit implies a Financial Account surplus [duplicate]

Every macro textbook out there states that if a country has a Current Account deficit, it must have a surplus in the Financial account, but I have not heard a convincing explanation. Imagine a ...
ColorStatistics's user avatar
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Interpretation of IMF Balance of Payments Data - Financial Account

While I understand the meaning of the components of the Financial account what I don't understand is the concept of "assets" and "liabilities" after direct investment, portfolio investment etc. A ...
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1 answer
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What happens if the Central Bank does not absorb a BOP deficit/surplus?

The basic principle of BOP accounting is double entry bookkeeping. In short, every transaction enters twice. As a consequence of this, by definition $$\text{Current account } (CA) + \text{Capital ...
Thev's user avatar
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4 answers
109 views

why is it always said that a CAD must be financed by borrowing from foreign countries

a current account deficit (CAD) means you have money leaking out of your country and going to ROW (rest of world). i see here (https://www.imf.org/external/region/tlm/rr/pdf/fpp5.pdf) that it can be '...
Randor's user avatar
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1 answer
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Where's a good place to find Information on Non-OCED countries?

I'm looking for Private Savings (Sp), Investment (I), Taxes (T), Government Spending (G) for India.
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Balance of payments and the free floating exchange rate system

I am a beginner economics student and recently, I have been learning about how balance of payments surpluses are important for a country to control the value of its currency using its accumulated ...
Tan Yong Boon's user avatar
1 vote
0 answers
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Devaluation of exchange rate meaning

Pilbeam's textbook on International Finance (p. 106) says: (...) the immediate effect of a devaluation of exchange rate from $S_1$ to $S_2$ is to make domestic good competitive (...) How can be ...
toyo10's user avatar
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3 votes
1 answer
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Why FDI stock in the same year is different in the same reports?

From World Investment Report 2003, in 2000, the US has 12.4% GDP as FDI inward stock and 13.2% GDP as FDI outward stock. These numbers are equivalent to 1274720 million USD, and 1356960 million USD. ...
user68863's user avatar
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1 vote
1 answer
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Terms definition in Balance of Payment

I have problems in distinguishing among terms in the Balance of Payment / the international balance sheet of a nation. As far as I know, on Assets and Liabilities sides of BPM, there are Portfolio ...
user68863's user avatar
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0 answers
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Is there a quantitative model demonstrating the relationship between balance of payments and exchange rate?

According to conventional analysis, a key factor in exchange rate determination is the state of the balance of payments. An increase in imports gives rise to an increase in a demand for foreign ...
zer0hedge's user avatar
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2 votes
2 answers
153 views

Difference between capital and current account

Why is an increase in foreign assets in a country different from us just selling foreigners our goods? As in why is one (inc. in assets) in capital account and the other (exports) in current account?
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2 answers
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How does Russia have so much foreign exchange reserves?

Source Russia is under U.S. sanctions. How does Russia have so much foreign exchange reserves?
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2 answers
25 views

Have UK exports (goods and services) to Ireland declined in value since 2011?

Where can I find the relevant Office Of National Statistics data on UK exports to Ireland? I want to know if the value of UK exports to Ireland has declined since 2011 and if so, does anyone know why ...
J Hogiel's user avatar
1 vote
1 answer
65 views

How to interpret illigal foreign currency (cash) transfers in terms of Balance of payments

There are a lot of examples of legal operations with trade balance and capital flows. Nonetheless, I've failed to find a clear explanations of how to interpret illigal (read, criminal) foreign ...
garej's user avatar
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-1 votes
1 answer
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Balance of Trade - Currency devaluation in a price taker economy

How will a real exchange rate devaluation affect Balance of Trade, if an economy is a price taker in world markets for both export and import?
Yoda's user avatar
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2 votes
0 answers
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help understanding the "financing" of the current account

I often hear phrases like country XYZ "finances its current account deficit through flows in its financial account". i have a tough time understanding this idea of "financing" a current account ...
user11302's user avatar
-3 votes
1 answer
92 views

How do currency traders resolve imbalances in the demand for different currencies?

Countries trade different amounts of goods that are inherently imbalanced. How do currency traders resolve these imbalances in the demand for different currencies? For example.... Imagine we have two ...
Lassie Fair's user avatar
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2 answers
422 views

What's the role for official intervention in the Balance of Payments?

If the Balance of Payments (BP) is defined as $$BP=\text{Current Account}+\text{Capital Account}$$ where: $$\text{Current Account}=X-M+\text{Net Income Interest}$$ and $$\text{Capital Account}=\...
An old man in the sea.'s user avatar