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Balance of Payments. It follows from double-entry bookkeeping that the balance of payments must always balance : total debits equal total credits . When we speak therefore of a positive or negative balance or a surplus or deficit , we evidently have in m

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Introduction

Balance-of-Payments Concepts It is appropiate to begin by a definition : the balance of payments is a summary statement of all economic transactions between the residents of one country and the rest of the world , covering some given period of time. Like many definitions , this one requiers clarification , especially with respect to the coverage and valuation of economic transactions and the criteria for determinig residency . The coverage of economic transactions refers to both commercial trade dealings and noncomercial transfers , which may or may not be effected through the forigen markets and which may not be satisfactorily recorded because of inadequacies in the system of data collection . Particularly difficult questions of valuation are posed by noncomercial transactions that take place between domestic and foreign-based units of individual corporations . The determination of residency should ordinarily not be difficult , but even here questions may arise concerning the treatment of overseas military forces and embassies , corporate subsidiaries and international organizations . Transactions are recorded in principle on a double-entry bookkeeping basis . Each transaction enterd in the accounts as a credit must have a corresponding debit and vice versa . The distributions commonly made in classifying the various accounts can be seen from the schematic balance of payments in Table 1.1 . There are many possible interrelationships among the various items showm in Table 1.1 that arise from the complexities of the market and nonmarket transactions typically recorded for an individual nation . Thus , the receipts and payments arising from merchandise and service exports and imports showm in the current account may have their counterpart debits or credits recored in one or more of the remaining accounts . The balance of payments must accordingly be looked at as a whole raher than in terms of its individual parts . It follows from double-entry bookkeeping that the balance of payments must always balance : total debits equal total credits . ...read more.

Middle

This has been the case especially in view of the change in the U.S balance-of-payments position after 1958 and the special role that the dollar plays in financing wolrd trade and in serving as a reserve currency . We turn next , therefore , to the major issues involved in the various alternative measurements of the U.S. balance of payments . Alternative Measurements of the U.S. Balance of Payments The schematic balance of payments in Table 1.1 was intentionally oversimplified in order to focus attention on the differences in various concepts . It would thus be expected that the actual balance of payments for a given country would normally contain a ggreater amount of detail particularly in the capital account and in the balancing items . Some flavor of such detail can be had from Table 1.2 , which indicates the three main groupings of accounts that are presently in use by the U.S. The actual balances corresponding to Table 1.2 are shown with minor mofification for 1968-71 in Table 1.3 . It is evident i reading down these tables that the two balances differ according to whether particular accounts are placed below or above the line . The balance on goods and services indicated in Table 1.3 is equal to net exports in the U.S. national income and product accounts . It corresponds to item 1-5 in Table 1.1. Table 1.2 Three Kinds of the Summary Groupins of U.S. International Transactions 1.Using concept of "balance on current account and long-term capital" Goods and services Remittances,pensions,and other transfers U.S.Government grants,capital flows,nonscheduled repayments of U.S Government assets , U.S governments nonliquid to other than foreign official reserve agencies Long-term private capital flows , U.S. and foreign Direct inverstments abroad and in the U.S. Foreign securities and U.S securities other than Treasury issues Other (bank and nonbank) Balance on Current Account and Long-Term Capital 2.Using concept of "net liquidity" Balance on current account and long-term capital Nonliquid short-term private capital flows , U.S. ...read more.

Conclusion

What it comes down to is the one should not use any particular concept blindly . Rather , an attempt should be made , with full realization of the conceptual problems involved , to specify alternative foreig exchange gaps as targets for purposes of economic policy. Thus , if it is believed that the balance on ofiicial reserve transactions is a reasonable reflection of autonomous and policy factors , we might strive to attain a policy goal of zero balance on official reserve transactions , subject to the attainment of certain other specified norms such as full employment without inflation and without increased restrictions on trade and payments. Conclusion All this is focused on various concepts of balance-of-payments equilibrium.It was suggested that an ex ante concept of balance-of-payments equilibrium may not be easily determined because of the continuos interplay between the implementation of economic policies and the carrying out of international transactions of all kinds . It may therefore be difficult to distinguish satisfactorily between autonomous and accommodating transactions and to assume some given magnitude of balance-of-payments disequilibrium for purposes of maintaing exchange-rate stability . While recognizing the importance of these reservations , we shall proceed nevertheless in much of what follows on the assumption that the conventional distinction between autonomous and accommodating items can be maintained . This assumption will serve conveniently for many purposes and will be relaxed wherever relevant. Another fact pointed out was the context of the U.S. balance of payments the issues involved in attempting to measure the balance , and the official reserve transactions balance . The question was alos rised as to whether , in the light of the special role of dollar balances in financing world trade and serving as an official reserve currency , it might not be preferable to use an altogether different concept that would focus on the net contribution of the U.S. to world liquidity . ...read more.

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