Talk:Balance of payments

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[edit] merge

I removed this merger tag: merge|http://en.wikipedia.org/wiki/Balance-of-payments Why merge with pages that do not and should not exist?? --Michaël 12:44, 22 January 2006 (UTC)

[edit] comments

What happened to the United States balance of payments? Please explain yourself before removing text.--Jerryseinfeld 21:56, 29 Jan 2005 (UTC)

"The balance of payments is a measure of the payments that flow from one country to another." Are you sure? The balance of payments is generally understood to be the payments in and out of one particular country. The balance is between payments to all other countries and payments from all other countries. James James 04:32, 23 September 2005 (UTC)

[edit] Oil?

"Some consider the system today to be based on oil, a universally desirable commodity due to the dependence of so much infrastructural capital on oil supply. Since OPEC prices oil in US dollars, the US dollar remains a reserve currency, but is increasingly challenged by the euro, and to some degree the Japanese yen."

This is incorrect, I believe. I don't know of any responsible economists who say that the balance of payments today is "based on oil". Please cite sources?

And it is not true that the US dollar remains a reserve currency, "since OPEC prices oil in US dollars". The US dollar is a reserve currency primarily because it is a "refuge" from economic and political uncertainty elsewhere. The euro and the yen both have challenged that, but have proven themselves to be comparatively unstable recently, so forex "refuge" funds have remained in the dollar. Pricing oil or any other commodity in any other currency would not alter this, in fact would only reflect a change: oil is priced in dollars, still, precisely because the dollar is economically and politically stable. The reasoning is the reverse.

--Kessler 23:43, 27 September 2005 (UTC)

in fact, compared to the euro, the dollar is now quite unstable. —The preceding unsigned comment was added by 193.198.8.211 (talk) 13:53, 18 January 2007 (UTC).

[edit] No surpluses or deficits in a balance

"For a country to have a zero balance of payments, a current account deficit must be balanced by a capital account surplus."

This statement is wrong. Per definition, a balance cannot have a surplus or a deficit. In terms of the balance of payments the sum of current account and capital account equals the foreign reserves.

See also: Mishkin, Frederic S., 2004, The Economics of Money, Banking, and Financial Marktes 7th Edition, p.468: "Because the balance of payments must balance, the official reserve transactions balance, which equals the current account plus the capital account, tells us the net amount of international reserves that must move between governments (as represented by their central banks) to finance international transactions."

--Andreas Vester 10:42, 7 November 2005 (UTC)


[edit] Macroeconomic implications

could someone explain the importance of the BOP? What exactly is being paid for? imports alone? what about remittances? how does it effects the exchange rate?

am I just not understanding the economics?

If its not clear to me I figure there is something lacking in the article itself.

--P Funk 17:20, 3 February 2006 (UTC)

[edit] BoP=Zero

I just added some text about how it could not equal zero. I've always been taught that it had to but I also know the real world involves strangeness that models don't. Still, I emphasized that it equals zero in the theory and in general. I'm currently studying for my final exam in macro this May so as I learn more I'll smooth out the article.

By the way, what's the source on that map? --David Youngberg 18:58, 14 April 2006 (UTC)

People often find it difficult to understand why the BOP should equal zero, but that is until they remember Official Reserves. Official Reserves are the buffer which means you can borrow and not spend more, or you can lend and spend, its the reserve (or more simply - the country's savings account) that then funds the change. Official Reserves are in the BOP calculation and thats why it balances. --Occasional User
Thanks to recent edits, someone clarified that the map doesn't refer to the balance of payments, but the balance of trade, which makes more sense because now we aren't so worried about the bop not equaling zero and confusing the reader. However, shouldn't this map be at the bot article and not the bop? --David Youngberg 18:00, 21 April 2006 (UTC)
I was under the impression that the map showed those with current account deficits thus requiring borrowings from overseas. I suppose economics is all a knock-on effect so CAD = BoT. --Rchan89 14:17, 25 February 2007 (UTC)

[edit] Could we have how governments could control their balance of payments?

Please MrDark 09:02, 29 April 2006 (UTC)

Ive done some of it
I think you're confusing balance of payments with balance of trade. It is possible, however, to have a deficit with balance of payments but there must be some kind of distortionary restriction. For example, from Macroeconomics 2nd ed (DeLong, Olney) "Thus under a gold standard, countries that run persistent balance of payments deficits--losing gold--must eventually raise interest rates to stay on the gold standard. However, surplus countries--those gaining gold--face no symmetrical crisis in which they must lower interest to stay on the gold standard....they can keep interest rates constant and watch their gold reserves grow." (p442)
Asymmetries (fixed exchanges rates, extensive capital restrictions, whatever) put pressure on the global economy, meaning governments must adjust because of the rules they put in place. If I recall correctly, in the modern era such asymmetries are rare and thus "correcting" the balance of payments is a misnomer. This needs to be made clear in the article. David Youngberg 02:29, 30 April 2006 (UTC)
I'll assume your right, because I don't understand. So you can make the required changes or just delete it :P MrDark 09:44, 1 May 2006 (UTC)

Skand swarup (talk) 04:28, 20 May 2008 (UTC) Governments could control their balance of payments (BoP) by altering the interest rate. Suppose there is a balance of payments deficit, the government can correct this by increasing the interest rate. Since the individual will now earn more money on the amount he saves, he will make an effort to save more. Thus, he will import lesser goods and services. On the other hand, firms in other countries would now want to invest in this country because the interest rate is high. So, money flowing out of the country goes down and money flowing in goes up. This will correct the BoP deficit.

[edit] US-specific Terminology

The first line in the Overview section mentions "our dollar". This appears to be U.S. specific. Would it be better to replace it with "a country's currency", "the currency of a particular country" or something similar? Feel free to make the change and then delete this section. Colin MacLaurin 11:02, 12 July 2006 (UTC)

Thanks to whoever fixed it. The language is much more neutral now. Colin MacLaurin 04:58, 20 July 2006 (UTC)

[edit] interpretations of Official Reserve Account- backwards?

I believe the following interpretation of changes in official reserves is backwards:

"In general, net increases in the Official Reserve Account will indicate that a country is buying its' currency to try to keep the price dear from the perspective of whatever resource is being sold to acquire the currency. Countries with net decreases in the Official Reserve Account are usually attempting to keep the price of their currency cheap relative to whatever resource they are purchasing in exchange for the currency."

If official reserves increase, that would indicate that a country is selling its own currency and buying another- not the other way around, as described in the article. This would result in reducing the value of the country's own currency (that it is selling).

In the opposite case, where official reserves decrease, the country is buying back its own currency with reserves, increasing the value of its own currency.

This interpretation makes sense, because countries with overvalued fixed exchange rates run into problems where they run out of official reserves in an attempt to keep their exchange rates at their overvalued level. Like in the case of Argentina in the late 1990s and countless other examples.

Somebody please correct me if I'm wrong, or edit the article! It's been too long since my international monetary system class for me to be absolutely certain. I'm only 85% certain.

I think you're right. The "reserves" are reserves of foreign currency, so if the reserves increase, as you said, domestic currency has been sold to purchase foreign exchange. If domestic currency is sold, the value decreases. Whew - I noticed that as being odd as well, and thought maybe I was going crazy. MrHumperdink 01:18, 6 November 2006 (UTC)
No, it was correct. Look at the Bank of Japan link. They have spent large amounts of yen to purchase Dollars and other assets. These were negative flows of Official Reserves. The official reserves of yen increase when there are more yen in the vaults. The official reserves of yen decrease when there are less. It's the financial account that works backwards. Take the case of a deserted island state. If they import foreign currency to purchase goods, there will be a capital surplus of the foreign currency and a trade deficit equal to the amount of currency imported. The intention of the central bank or its' government may not necessarily be towards manipulating its' currency's value, but the description of the flows was correct.

I'm sorry, I just realized how incomplete that last statement was. It depends on how the reserves are presented. If they are presented like the BEA does, they look normal: gold increases when it's put into the vault, foreign currency decreases when it leaves, etc. If it's presented like the BoJ, where the reserves are on the other side of the equation, then debits and credits are reversed. I'll try to find a good link and make editions. Worst case, I'll find the BEA or Fed and BoJ language to make a mock-up.

Hopefully, the changes I've provided will help. Please note them and correct any errors. Thanks.

[edit] Capital account surplus

I think it is misleading to describe the situation where liabilities rise faster than assets as a surplus. Wouldn't something "net capital inflows" be better? --Henrygb 12:22, 12 December 2006 (UTC)

Agree I concur, but it is technically correct. --Rchan89 14:17, 25 February 2007 (UTC)

[edit] Vandalism

Please keep aware of the possibility of future vandalism to the article. The Balance of Payments Identity section was removed and replaced with "ho cares", which was later removed. —Preceding unsigned comment added by 75.66.83.101 (talk) 19:08, 6 November 2007 (UTC)

[edit] Capital account - financial account mix up

After reading that I was less educated than before. If, by definition of the IMF, the capital account contains income from foreign investment and the financial account is basically made up by transfer of capital, then where is the foreign exchange balance???

The IMF definition: "The balance of payments is a statistical statement that summarizes transactions between residents and nonresidents 
during a period."[1] The balance of payments comprises the current account, the capital account, and the financial account. "Together, these
accounts balance in the sense the sum of the entries is conceptually zero."[1]

Changes in the official reserves account for the differences between the capital account and current account, and effectively represent
foreign exchange interventions; the magnitude of these changes will depend on monetary policy

There ends do not meet! If the balance of payments is made up by the current, capital and financial account whose sum is zero, you can hardly add another balance to even out what is allready zero.. Or does the IMF add the "reserve account" (or foreign exchange balance) to its capital account? That could explain why they list the biggest importer of capital, China, as the biggest exporter(!!). http://www.imf.org/external/pubs/ft/gfsr/2007/01/pdf/statappx.pdf


-- I agree, I've just finished reading this article and I'm more confused than before as well. A clear line should be drawn between the IMF definition and the standard definition. —Preceding unsigned comment added by 91.67.221.151 (talk) 15:12, 26 May 2008 (UTC)

—Preceding unsigned comment added by 80.109.12.226 (talk) 08:58, 14 February 2008 (UTC)