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Balance of payments

In international economics, the balance of payments (also known as balance of international payments and abbreviated BOP or BoP) of a country is the difference between all money flowing into the country in a particular period of time (e.g., a quarter or a year) and the outflow of money to the rest of the world. In other words, it is economic transactions between countries during a period of time. These financial transactions are made by individuals, firms and government bodies to compare receipts and payments arising out of trade of goods and services.

Not to be confused with Balance of trade.

The balance of payments consists of three components: the current account, the capital account and financial account. The current account reflects a country's net income, while the capital account reflects the net change in ownership of national assets.

Trade

Factor income

A visible trade deficit where a nation is importing more physical goods than it exports (even if this is balanced by the other components of the current account.)

An overall current account deficit.

A basic deficit which is the current account plus foreign direct investment (but excluding other elements of the capital account like short terms loans and the reserve account.)

Economic policy and the balance of payment[edit]

Balance of payments and international headcount data is critical to the formulation of national and international economic policies. The balance of payments imbalances and foreign direct investment (FDI) is crucial for a country's policymakers to seek solutions. The impact of national and international policies can be seen in the balance of payments data. For example, one country may implement a policy to attract foreign investment. In contrast, another country may want to keep its currency relatively low to stimulate exports. Although a country's balance of payments will bring its current account and capital account into balance, there will be imbalances between countries' accounts. According to the World Bank data, the current account deficit in the United States is $498 billion in 2019 (The World Bank)


Suppose a country's balance of payments deficits are persistent. In that case, the country may suffer from a loss of confidence as its foreign exchange reserves deplete. At the same time, it makes the country very vulnerable to seasonal, cyclical or unpredictable fluctuations in foreign countries. It could lead to excessive inflation at home. Therefore, the stability of currency provides a strong guarantee for the sustainable development of the economy. Countries can analyze the current economic situation domestically and internationally through the annual balance of payment and formulate effective monetary policy combined with the political influence of international and multilateral relations (Zolotas and Ethymiou 1965)


The economic policy objectives could, in principle, serve as the standard for the balance of payments policies. At the same time, exchange rate policy is treated as income policy. F. De Roos (1982) argues that only equilibrium of the balance of payments can be considered as a long term criterion for the balance of payments policy in the case of stable exchange rates. In the case of flexible exchange rates, the criterion can be found in the degree of domestic economic stability.

Currency crisis

Exchange rate regime

Foreign exchange reserves

History of money

IMF Balance of Payments Manual

Sectoral balances

Sovereign default

Sterilization (economics)

Sudden stop (economics)

Comprehensive international BOP statistics from the IMF

Archived 29 June 2010 at the Wayback Machine

BOP for Hong Kong

(See "External Sector")

US statistics

Detailed historical BOP data from the US Bureau of Economic Analyses

(ECB, as source of euro area) (1 March 2017). "Balance of payments, capital account, monthly data". Eurostat. Archived from the original on 16 May 2018. Retrieved 17 May 2018.

European Central Bank