The balance of payments

Abstract

This chapter provides an overview on the balance of payments. The balance of payments is defined as a systematic statistical account of all the economic transactions of the residents of a country with the rest of the world over a specific period, generally a year, a quarter, or a month. The balance of payments is considered as the chief statistical aid for the assessment of a country's international economic position. It is particularly important for countries that maintain fixed exchange rates or controlled floating, because it enables a government to evaluate the effects of its external economic policies and to amend these policies if the results of the evaluation are unsatisfactory. The balance of payments includes all economic transactions with the outside world, whether they involve merchandise, services, assets, financial claims, or gifts. The balance of payments measures the value of transactions that occur during a specific period. Thus it measures flows, not stocks. In the case of transactions in assets, the balance of payments shows the changes that have occurred but it does not show the stock of such assets.