| Dictionary: balance of payments |
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| Investment Dictionary: Balance Of Payments - BOP |
A record of all transactions made between one particular country and all other countries during a specified period of time. BOP compares the dollar difference of the amount of exports and imports, including all financial exports and imports. A negative balance of payments means that more money is flowing out of the country than coming in, and vice versa.
Investopedia Says:
Balance of payments may be used as an indicator of economic and political stability. For example, if a country has a consistently positive BOP, this could mean that there is significant foreign investment within that country. It may also mean that the country does not export much of its currency.
This is just another economic indicator of a country's relative value and, along with all other indicators, should be used with caution. The BOP includes the trade balance, foreign investments and investments by foreigners.
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| Banking Dictionary: Balance of Payments |
Accounting of a country's economic transactions with foreign countries in a stated period of time, normally one year. The balance of payments for any country is divided into two broad categories: the Current Account representing import and export trade, plus income from tourism, profits earned overseas, and interest payments; and the capital account, representing the sum of bank deposits, investments by private investors, and debt securities sold by a central bank or official government agencies.
In economic terms, a balance of payments surplus means a nation has more funds from trade and investments coming in than it pays out to other countries, resulting in an Appreciation in the value of its national currency versus currencies of other nations. A deficit in the balance of payments has the opposite effect: an excess of imports over exports, a dependence on foreign investors, and an overvalued currency. Countries experiencing a payments deficit must make up the difference by exporting gold or Hard Currency reserves, such as the U.S. Dollar, that are accepted currencies for settlement of international debts. See also International Reserves; Special Drawing Rights.
| Geography Dictionary: balance of payments |
A comparison between the payments made by one country to other nations of the world and the revenue it receives from them. If receipts exceed outgoings, the balance is positive. The capital account records payments made in settlement of old debts or establishment of new ones; the current account shows payments made on goods and services, including interest payments. The balance of trade is a similar record, but registers only visible exports and imports.
| Britannica Concise Encyclopedia: balance of payments |
For more information on balance of payments, visit Britannica.com.
| Columbia Encyclopedia: balance of payments |
Since the late 1950s the United States has generally experienced an unfavorable balance of payments because of large-scale foreign aid, sizable U.S. investment in Europe, and major U.S. military investments abroad. In the early 1970s the United States, in an effort to create a more favorable balance of payments, announced (1971, 1973) a devaluation of the U.S. dollar. However, the increase in the cost of petroleum from the Arab states (1973-74) had a negative effect on the balance of payments in the United States and most countries in Western Europe. In addition, tight money policies and high deficits adversely affected the savings rate in the United States in the 1980s and caused the balance of payments to decline even further. As a result, the United States looked to foreign borrowing to fill the gap, but the interest payments only increased the shortfall in the balance of payments. In the late 1990s and 2000s the U.S. balance of payments reached record negative levels.
Bibliography
See N. Fatemi, Problems of Balance of Payment and Trade (1975); T. De Saint Phalle, Trade, Inflation, and the Dollar (1981); D. Bigman, ed., Floating Exchange Rates and the State of World Trade Payments (1984).
| Economics Dictionary: balance of payments |
The relationship between the payments made by one nation to all other nations and its receipts from all other nations.
| Wikipedia: Balance of payments |
In economics, the balance of payments, (or BOP) measures the payments that flow between any individual country and all other countries. It is used to summarize all international economic transactions for that country during a specific time period, usually a year. The BOP is determined by the country's exports and imports of goods, services, and financial capital, as well as financial transfers. It reflects all payments and liabilities to foreigners (debits) and all payments and obligations received from foreigners (credits). Balance of payments is one of the major indicators of a country's status in international trade, with net capital outflow.[citation needed]
The balance, like other accounting statements, is prepared in a single currency, usually the domestic. Foreign assets and flows are valued at the exchange rate of the time of transaction.
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The IMF definition: "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 and the capital account (or the financial account). "Together, these accounts balance in the sense that the sum of the entries is conceptually zero."[1]
The balance of payments identity states that:
This is a convention of double entry accounting, where all debit entries must be booked along with corresponding credit entries such that the net of the Current Account will have a corresponding net of the Capital and Financial Accounts:

where:
Rearranging, we have:
,yielding the BOP identity.
The basic principle behind the identity is that a country can only consume more than it can produce (a current account deficit) if it is supplied capital from abroad (a capital account surplus).[2]
Mercantile thought prefers a so-called balance of payments surplus where the net current account is in surplus or, more specifically, a positive balance of trade.
A balance of payments equilibrium is defined as a condition where the sum of debits and credits from the current account and the capital and financial accounts equal to zero; in other words, equilibrium is where

This is a condition where there are no changes in Official Reserves.[3] When there is no change in Official Reserves, the balance of payments may also be stated as follows:

or:

Canada's Balance of Payments currently satisfies this criterion. It is the only large monetary authority with no Changes in Reserves.[4]
Historically these flows simply were not carefully measured due to difficulty in measurement, and the flow proceeded in many commodities and currencies without restriction, clearing being a matter of judgment by individual private banks and the governments that licensed them to operate. Mercantilism was a theory that took special notice of the balance of payments and sought simply to monopolize gold, in part to keep it out of the hands of potential military opponents (a large "war chest" being a prerequisite to start a war, whereupon much trade would be embargoed) but mostly upon the theory that large domestic gold supplies will provide lower interest rates. This theory has not withstood the test of facts.[citation needed]
As mercantilism gave way to classical economics, and private currencies were taxed out of existence, the market systems were later regulated in the 19th century by the gold standard which linked central banks by a convention to redeem "hard currency" in gold. After World War II this system was replaced by the Bretton Woods institutions (the International Monetary Fund and Bank for International Settlements) which pegged currency of participating nations to the US dollar and German mark, which was redeemable nominally in gold. In the 1970s this redemption ceased, leaving the system with respect to the United States without a formal base, yet the peg to the Mark somewhat remained. Strangely, since leaving the gold standard and abandoning interference with Dollar foreign exchange, the surplus in the Income Account has decayed exponentially, and has remained negligible as a percentage of total debits or credits for decades. Some[who?] 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; however, no central bank stocks reserves of crude oil. Since OPEC oil transacts in US dollars, and most major currencies are subject to sudden large changes in price due to unstable central banks, the US dollar remains a reserve currency, but is increasingly challenged by the euro, and to a small degree the pound.
The United States has been running a current account deficit since the early 1980s. The U.S. current account deficit has grown considerably in recent years, reaching record high levels in 2006 both in absolute terms ($758 billion) and as a fraction of GDP (6%).
According to Murray Rothbard:
| “ | Fortunately, the absurdity of worrying about the balance of payments is made evident by focusing on inter-state trade. For nobody worries about the balance of payments between New York and New Jersey, or, for that matter, between Manhattan and Brooklyn, because there are no customs officials recording such trade and such balances.[5] | ” |
You can also download historical balance of payments information from 1960 under the "All Tables" link of the following page:
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| Favorable Trade Balance (business term) | |
| Current Account (business term) | |
| Capital Account (business term) |
| Why is a balance of payment important and why does it balance? | |
| Balance of payment laways in balance? | |
| Why balance of payments must balance? |
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