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Payments
Accounting
The Balance of Payments
• Recall the open economy accounting
identity: Income = Expenditures
Y = C + I + G + NX
• Trade Deficits imply NX< 0
Therefore, Y- (C + I + G) = NX < 0
CA + KFA = 0
The Current Account
• Any transaction that represents a flow of funds out of the
US is represented by debit (-). Transactions that represent
a flow of money into the US are represented by a credit(+)
• Net Exports of Goods and Services
Exports (+)
Imports (-)
• Net Income From Abroad (NFP)
Income Earned by US nationals abroad (+)
Income earned by foreign nationals in the US (-)
• Net Unilateral Transfers
Payments from foreign countries (+)
Payments to foreign Countries (-)
The US Current Account:
2003 (in Millions of $s)
Exports of Goods, Services, and Income
Goods: $ 713,122
Services: $ 307,381
Income Receipts:
Investment Receipts: $ 291,354
Employee Compensation: $ 3,031
Imports of Goods, Services and Income
Goods: -$1,260,274
Services: -$ 256,337
Income Receipts:
Investment Receipts: -$ 252,573
Employee Compensation: -$ 8,533
Net Unilateral Transfers: -$ 67,439
Current Account : -$530,668
US Exports
Other, 5%
Western Europe,
23%
Mexico, 15%
South/ Central
America, 8%
US Imports
Other, 9% Western Europe,
20%
Mexico, 11%
Canada, 19%
South/ Cemtral
America, 6%
The Capital & Financial
Account
• Again, any transaction that represents
funds flowing into (out of) the US are credits
(debits) in the KFA
• Financial assets
Foreign acquisition of US assets (+)
US acquisition of foreign assets (-)
• Official Reserve Assets
Foreign acquisition of US reserve assets (+)
US acquisition of foreign reserve assets (-)
The US Capital & Financial
Account: 2003 (in Millions of
$s)
Capital Account: -$ 3,079
US Owned Assets Abroad (Increase/Financial Outflow (-))
J an-86
J an-89
J an-95
J an-98
J an-01
J an-83
J an-92
-20
-40
-60
Current Account
-80
-100
-120
-140
-160
US Balance of Payments
250
200
150
100
50 Current Account
0 FKA
J an-80
J an-86
J an-89
J an-95
J an-98
J an-01
J an-83
J an-92
-50
-100
-150
-200
-200
-150
-100
100
150
200
-50
50
0
J an-80
J an-82
J an-84
J an-86
J an-88
J an-90
J an-92
J an-94
J an-96
J an-98
J an-00
J an-02
BOP
US Balance of Payments
US Trade Weighted
Exchange Rate Index
140
130
120
110
100
90
80
70
60
50
Jan-93
Jan-01
Jan-85
Jan-87
Jan-89
Jan-91
Jan-95
Jan-97
Jan-99
Jan-03
Balance of Payments and
Exchange Rates
Should the Balance of Payments Accounts
influence exchange rates?
A BOP deficit (surplus) indicates that financial
assets flowing out of (into a) country. Shouldn’t
that indicate a currency depreciation?
No really….the balance of payments is an
accounting statement. Given the pattern of
exchange rates, the BOP indicates the
transactions that took place (Remember, by
definition, BOP=0)
US Trade Accounts
2 80
1.8 70
1.6 60
Trillions of $
Billions of $
1.4 50 Exports
1.2 40
1 30 Imports
0.8 20
Unilateral
0.6 10
Transfers
0.4 0
0.2 -10
0 -20
1986
1988
1990
1992
1994
1996
1998
2000
1980
1982
1984
2002
Billions of $
-1.5
-0.5
0.5
1.5
-1
0
1
2
1960
1963
1966
Position
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
US Official Reserve
2002
Gold
Billions of $
-30
-25
-20
-15
-10
10
-5
0
5
1960
1963
1966
1969
Position
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
US Official Reserve
Foreign Currency
US Foreign Investment
50
0
0
2
8
0
19
19
19
19
19
19
19
19
19
20
19
20
Billions of $
-50
FDI
-100
Portfolio
I nvestment
-150
-200
-250
Foreign Investment in the
US
1.2
1
Trillions of $
0.8
0.6 Official
0.4 Private
0.2
0
-0.2
80
82
84
86
88
90
92
94
96
98
00
02
19
19
19
19
19
19
19
19
19
20
19
20
The US BOP
Consider an alternative form of the
national income accounting
identity.
Y = C + I + G + NX (Income = Expenditures)
- Y = C + S + T (Income = Outlays)
0 = I + (G-T) + NX – S