U.S. International Capital Flows and the Dollar

Abstract

Table 1 summarizes the broad categories of financial flows for the period 1976-84. Twice during that period the U.S. current account moved into substantial deficit. In contrast to the 1977-78 experience, the widening of that deficit in 1983 and 1984 was associated with large net inflows of private rather than official capital, along with an extraordinary appreciation of the dollar. The shift in private capital flows was concentrated initially in bank-reported transactions, which swung from a large net outflow in 1982 to a sizable net inflow in 1983. This sharp shift was not surprising, since banks are positioned to intermediate between investors and borrowers in response to small changes in rates of return. Over time, however, other channels for private capital inflows have also developed and expanded.