THE IMPACT OF BALANCE OF PAYMENTS ON MONETARY POLICY

Abstract

The paper monitors the balance of payments in the Republic of N. Macedonia, which determines the amount of the exchange rate through the supply and demand of foreign currency, as well as the impact of the exchange rate on the balance of payments movements. Real exchange rates are essentially equilibrium exchange rates. exchange rate that will keep the balance of payments in balance without taking measures for foreign exchange control, without pronounced inflation and deflationary tendencies and without constant expectation of monetary and foreign exchange reserves.There are several methods by which balance of payments can be established: by devaluation, by currency control and by deflation. When considering the relationship between the national currency exchange rate and the balance of payments of a national economy in terms of their interconnections, one should depart from their causal link of impacts. The exchange rate affects the balance of payments, as well as the balance of payments affects the exchange rate.The first part of the paper elaborates in detail the key activities of the balance of payments adjustment and the exchange rate adjustment, as well as their mutual impact.We use the adjustment mechanism to restore balance once the initial equilibrium has been disturbed. The payment adjustment process takes two different forms. One, under certain conditions, has adjustment factors that automatically contribute to balancing. Second, in the event that automatic adjustment fails to strike a balance, the government adopts a discretionary policy to achieve this goal.