Abstract
On the basis of the identity between each country's global imports (commercial and financial) and exports (commercial and financial), which is one of the fundamental economic principles of the balance of payments, the paper highlights why and how the leading account of transactions from/to the rest of the world needs to be reformed. As a strategic goal, the balance of payments should finally move beyond its current purely statistical and simple-entry bookkeeping approach in order to improve its macroeconomic relevance. This would also imply a new way of carrying out cross-border payments, which could in turn pave the way for a new system of international payments. The development of an economic account of the nation as a whole and the introduction of a consistent way of recording transactions following a truly double-entry bookkeeping would also erase statistical discrepancies ex ante and reflect the necessary equality (identity) of credits and debits both for all transactions taken together and for each of them separately. The balance of payments is already a powerful economic tool, but only through a money-consistent reform would it display its full potential.
Highlights
We can preliminarily state that the balance of payments, namely “a statistical statement that systematically summarizes, for a specific time period, the economic transactions of an economy with the rest of the world” (International Monetary Fund, 1997), is the most relevant external statistical document registering all international commercial and financial transactions between countries
Every transaction must be entered twice, once as a credit and once as a debit. This is the essence of the radical change necessary to turn the balance of payments from a statistical collection of data into an instrument delivering a clear picture of a country’s commercial and financial relationships with the rest-of-the-world
Despite being still a powerful tool indicating the external position of a country towards the rest of the world, it lacks an approach structurally based on double-entry bookkeeping
Summary
We can preliminarily (and safely) state that the balance of payments, namely “a statistical statement that systematically summarizes, for a specific time period, the economic transactions of an economy with the rest of the world” (International Monetary Fund, 1997), is the most relevant external statistical document registering all international (traceable) commercial and financial transactions between countries. It is confirmed that payments between residents, whether of the same country or of different countries, comply with the identity of their debits and credits, each purchase being financed by an equivalent and simultaneous sale In other words, this means that money intervenes to convey reciprocal exchanges the objects of which are commercial and financial assets. Since commercial and financial transactions recorded in the balance of payments pertain to private and public agents (residents) but contribute to modifying the nation’s position as a whole, a country’s economic account should be created This account would represent the flow-version of the already existing International Investment Position (IIP) and, by means of a double-entry bookkeeping approach, would highlight the involvement of the economy as a whole. These data are biased by insufficient transparency (at least, for some countries) and by the presence of the “net errors and omissions” item (see Table 4), not a negligible component, the picture is pretty clear: statistical discrepancies are very evident, enduring and - more relevantly - symptomatic of the fragmentary approach to the recording of transactions, whereas they should be registered in a simultaneous and identical-in-value way
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