Dale R' DeBoer

1
An Introduction to International Economics

• Chapter 10 Balance of Payments
• Dominick Salvatore
• John Wiley Sons, Inc.

2
Balance of payments

• The balance of payments provides a summary
  statement of international transactions for a
  nation for a specified period of time.
• The balance of payments converts international
  transactions into dollar terms at the going rate
  of currency exchange.

3
Key categories

• Credit transactions
• Transactions that involve receipt of payments
  from foreign sources.
• Major types
• Exports of goods and services
• Capital inflows
• Increases in foreign assets in a nation
• Decreases in a nations assets abroad

4
Key categories

• Credit transactions
• Debit transactions
• Transactions that involve payment to foreign
  sources.
• Major types
• Imports of goods and services
• Capital outflows
• Increases in a nations assets abroad
• Decreases in foreign assets in a nation

5
Double entry bookkeeping

• In balance of payment accounting, each
  international transaction is recorded twice
  once as a credit, once as a debit.
• Examples
• 500 in exports to be paid in 3 months time

6
Double entry bookkeeping

• Examples
• 500 in exports to be paid in 3 months time
• 200 spent by a US tourist in London on services

7
Double entry bookkeeping

• Examples
• 500 in exports to be paid in 3 months time
• 200 spent by a US tourist in London on services
• 100 in US government foreign aid given to the
  government of a developing nation

8
Double entry bookkeeping

• Examples
• 500 in exports to be paid in 3 months time
• 200 spent by a US tourist in London on services
• 100 in US government foreign aid given to the
  government of a developing nation
• 400 in foreign stocks paid for by increasing
  foreign bank balances in the U.S.

9
The balance of payments for the U.S.

• 2003 data from the Bureau of Economic Analysis in
  billions of U.S. dollars
• WWW link

10
The balance of payments for the U.S.

• Service exports
• These factors show the source of total service
  exports.
• Income receipts are primarily income earned on
  past investment activities abroad.

11
The balance of payments for the U.S.
12
Balance of payments for the U.S.

• Summary accounts
• Merchandise trade balance - 548 billion
• Goods exports goods imports
• Trade balance - 497 billion
• Exports of goods and services imports of goods
  and services
• Income balance 33 billion
• Current account -531 billion
• Trade balance income balance unilateral
  transfers

13
The balance of payments for the U.S.

• Main portfolio investment items
• Direct investment

14
The balance of payments for the U.S.

• Main portfolio investment items
• Direct investment

15
Balance of payments for the U.S.

• Summary accounts
• Merchandise trade balance - 548 billion
• Trade balance - 497 billion
• Income balance 33 billion
• Current account -531 billion
• Financial account balance 544 billion

16
Balance of payments for the U.S.

• Summary accounts
• Merchandise trade balance - 548 billion
• Trade balance - 497 billion
• Income balance 33 billion
• Current account -531 billion
• Financial account balance 544 billion
• The balancing factor statistical discrepancy
• Arises from the mis-recording of items in the
  balance of payments accounts
• Statistical discrepancy - 12 billion

17
The ORSB

• The Official Reserve Settlement Balance (ORSB)
  measures the change in U.S. official reserve
  assets and the change in foreign official reserve
  assets in in the U.S.
• The ORSB accommodates for a deficit or surplus in
  autonomous transactions (transactions that occur
  for business or profit motives).

18
Historical values
Source Federal Reserve Bank
19
Historical values
Source Federal Reserve Bank
20
Historical values
Source Federal Reserve Bank
21
Historical values
Source Federal Reserve Bank