In economics, a country account is one of the two components of the balance of payments, the other is a capital account (also known as a financial account). Demand deposits consist of trade balance, primary income net or factor income (income from foreign investment minus payments made to foreign investors) and net cash transfers, which have been taken place during time period. Current account balances are one of the two primary sizes of a country's foreign trade (the other is net capital outflow). The current account surplus shows that the net asset value of a country (ie assets minus liabilities) grows during the period, and the current account deficit indicates that it is shrinking. Government and private payments are included in the calculations. These are called checking accounts because goods and services are generally consumed in the current period.
Video Current account
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Newspaper accounts are important indicators of economic health. This is defined as the sum of the trade balance (exports of goods and services minus imports), net income from abroad and transfers goes smoothly. Positive post account balances indicate that the state is a net lender to the rest of the world, while a negative account balance shows that it is a net borrower from around the world. The current account surplus increases the net foreign assets of the country by the amount of surplus, and the current account deficit decreases with that amount.
A country's trade balance is the net or difference between the country's exports of goods and services and imports of goods and services, ignoring all financial transfers, investments and other components, over a period of time. A country is said to have a trade surplus if its exports exceed its imports, and a trade deficit if its imports exceed its exports.
Positive net sales abroad generally contribute to a current account surplus ; negative net sales abroad generally contribute to running account deficit . Because exports generate positive net sales, and since the trade balance is usually the largest component of the current account, the current account surplus is usually associated with positive net exports.
In the net income factor or income account, income payments are outflows, and revenue receipts are inflows. Revenue is receipts from investments made overseas (note: investments are recorded in capital accounts but income from investments recorded in current accounts) and money sent by individuals working abroad, known as remittances, to their families in home. If the revenue account is negative, the state pays more than taking interest, dividends, etc.
The various subcategories in the income account relate to specific subcategories of each in the capital account, since income often consists of payment of factors from the ownership of capital (assets) or negative capital (debt) abroad. Of capital accounts, economists and central banks determine the implied rate of return on different types of capital. The United States, for example, carries a much greater rate of return on foreign capital than foreigners have from US capital.
In the traditional accounting balance of payments, the current account is equal to the change in net foreign assets. The current account deficit implies a parallel decline in net foreign assets.
- Current account = change in net foreign assets.
If an economy has a current account deficit, it absorbs (absorption = domestic consumption of government spending investment) more than it produces. This can only happen if some other countries lend their savings (in the form of debt or direct investment/portfolio in the economy) or the economy is lowering its foreign assets like official foreign currency reserves.
On the other hand, if the economy runs a current account surplus, it absorbs less than it produces. This means saving. When the economy is open, these savings are being invested abroad and thus foreign assets are being made.
Maps Current account
Calculation
Typically, the current account is calculated by adding 4 current account components: goods, services, revenue, and current transfers.
- Items
- Being moving and physically in nature, goods are often traded by countries around the world. When a transaction of certain goods belonging from a local country to a foreign country occurs, this is called "export". Conversely, when the owner of the goods turns into a local resident of a foreigner, it is defined as "import". In calculating the current account, the export is marked as credit (money entry) and import as debit (outflow of money).
- Services
- When intangible services (eg tourism) are used by foreigners on local land and local residents receive money from foreigners, this is also counted as exports, so credit.
- Earnings
- Income credit occurs when a person or a domestic national company receives money from a company or an individual with a foreign identity. Foreign companies' investment in domestic or local government companies is considered a debit.
- Current transfers
- Current transfers occur when a particular foreign country only gives currency to another country without accepting anything in return. Typically, the transfer is made in the form of donations, assistance, or official assistance.
The demand deposit account of a country can be calculated by the following formula:
Where CA is a checking account, X and M are respectively exports and imports of goods and services, NY net income from abroad, and NCT net current transfers.
Reduce current account deficit
The current state account balance is influenced by many factors - trade policy, exchange rate, competitiveness, foreign exchange reserves, inflation rate and others. Since the trade balance (exports minus imports) is generally the greatest determinant of a current account surplus or deficit, the current account balance often displays cycle trends. During strong economic expansion, import volume usually increases; if exports can not grow at the same rate, the current account deficit will widen. Conversely, during a recession, the current account deficit will shrink if imports fall and exports increase to a stronger economy. Currency rates have a significant effect on the trade balance, and by extension, on the current account. The overvalued currency makes imports cheaper and exports less competitive, enabling a current account deficit (or narrowing the surplus). The undervalued currency, on the other hand, increases exports and makes imports more expensive, thus increasing the current account surplus (or narrowing the deficit). Countries with chronic running account deficits often come under increased investor control over an increasing period of uncertainty. The currencies of these countries are often under speculative attack during that time. This creates a vicious cycle in which valuable foreign currency reserves run out to support the domestic currency, and the depletion of these forex reserves - combined with a worsening trade balance - puts further pressure on the currency. Fighting nations are often forced to take stringent measures to support currencies, such as raising interest rates and limiting the outflow of currencies.
Actions to reduce large current account deficits typically involve an increase in exports (goods coming out of a country and entering a foreign country) or decreasing imports (goods coming from a foreign country to a country). First, this is generally done directly through import restrictions, quotas, or duties (though this may indirectly limit exports as well), or by promoting exports (through subsidies, exemption of import duties, etc.). Influencing the exchange rate to make exports cheaper for foreign buyers will indirectly increase the balance of payments. Also, currency warfare, a phenomenon seen in the post-recession market is a protectionist policy, in which countries devalue their currencies to ensure export competitiveness. Second, adjusting government spending to support domestic suppliers is also effective.
The less obvious method of reducing the current account deficit includes measures that increase domestic savings (or reduce domestic borrowing), including reduction of loans by national governments.
A running account deficit is not always a problem. The Pitchford thesis states that the current account deficit does not matter if it is driven by the private sector. It is also known as the "adult consent" view of current transactions, because it argues that deficits do not matter if they come from private sector agents involved in mutually profitable trades. The current account deficit creates the obligation to repay foreign capital, and the capital consists of many individual transactions. Pitchford asserted that since each of these transactions are individually considered to be financially sound when created, their aggregate effect (the current account deficit) is also heard.
Deficit means we import more goods and services than we export.
To be more precise, the current account is the same as: Trade in goods (visible balance) Trading in service (Invisible balance) eg. insurance and services Investment income eg payments of dividends, interest and migrants from abroad Net transfers - e.g. International assistance Newspaper accounts are basically export - import (net international investment balance)
If a person has a current account deficit, this floating exchange rate should be offset by a surplus on a financial/capital account.
The relationship in the balance of payments
The balance of payments (BOP) is the place where countries record their monetary transactions with other countries in the world. Transactions are marked as credit or debit. In BOP there are three separate categories where different transactions are categorized: current account, capital account and financial account. In the current account, goods, services, revenues and transfers are recorded. In capital accounts, physical assets such as buildings or factories are recorded. And in financial accounts, assets related to international monetary flows, for example, business or portfolio investments are recorded.
Without changes in official reserves, the current account is a mirror image of the number of capital and financial accounts. People may then ask: Is the current account driven by a capital and financial account or vice versa? The traditional response is that current transactions are a major contributing factor, with capital and financial accounts reflecting only deficit financing or fund investments arising as a result of a surplus. However, recently some observers have suggested that the opposite causal relationship may be important in some cases. In particular, it has been controversially proposed that the current US current account deficit is driven by the desire of international investors to acquire US assets (see Ben Bernanke, William Poole below). However, the main point of view can not be denied that the underlying factor is the current account and that the positive financial statements reflect the need to finance the current account deficit.
The current account surplus is facing a current account deficit in other countries, overseas debt is increasing. According to Balances Mechanics by Wolfgang StÃÆ'¼tel, this is described as a surplus cost of revenue. The increase in imbalances in foreign trade is critically discussed as a possible cause of the financial crisis since 2007. Many economists consider the difference between a demand deposit account in the euro zone to the root cause of the Euro crisis, such as Yanis Varoufakis, Heiner Flassbeck, Paul Krugman or Joseph Stiglitz.
AS. account deficit
Since 1989, the current US current account deficit has grown, reaching almost 7% of GDP in 2006. In 2011, this was the highest deficit in the world. New evidence, however, indicates that the current US account deficit is being mitigated by the effects of a positive assessment. That is, US assets abroad get value relative to domestic assets held by foreign investors. Therefore, US net foreign assets do not deteriorate by one to one with current account deficits. Recent experiences have reversed the effects of this positive assessment, however, with the position of US net foreign assets worsening by more than two trillion dollars in 2008, falling to less than $ 18 trillion, but has since risen to $ 25 trillion. This temporary decline was mainly due to the relatively low performance of foreign ownership of foreign assets (mostly foreign equity) compared to foreign ownership of domestic assets (mostly US bonds and bonds).
OECD quarterly international trade statistics
Organization for Economic Co-operation and Development, the OECD - an international economic organization of 34 countries, was established in 1961 to "promote policies that will improve the economic and social welfare of peoples around the world" - generates quarterly reports on 34 member states comparing statistics on the balance sheet payments and international trade in case the account balance runs in billions of US dollars and as a percentage of GDP.
For example, according to their reports, the current account balances in billions of US dollars from several countries can be compared,
- Australia for 2013 is -51,39 and 2014 is -43.69, with each quarter between 2013 Q1 to 2015 Q2 starting from the low of -14.81 in Q2 2015 to a high of -8.53 on Q1 2014. Australia's current account balance in Q2 2015 rose to -14.81. Current balance in Q2 as a percentage of GDP is -4.7%.
- Canada for 2013 is -54.62, and 2014 is -37.46 with each quarter between 2013 Q1 to 2015 Q2 ranging from the lowest -14.63 in Q1 2015 to the highest -8.28 in Q3 2014. Balance Sheet Canadian running account in Q2 2015 rose at -14.15. Current balance in Q2 as a percentage of GDP is -3.5%.
- China for 2013 is 148.33, and 2014 is 219.90 with each quarter between 2013 Q1 to 2015 Q2 starting from the low of 31.96 in Q4 2014 to 75.58 high in Q4 2013. The current account balance of the United States in Q2 2015 down to 73.03. Current balance in 2013 as a percentage of GDP is 1.6%.
- Germany for the year 2013 is 238.61, and 2014 is 285.82 with each quarter between 2013 Q1 to 2015 Q2 starting from the low of 54.13 in Q3 2013 to 68.89 highs in Q1 2014. German checking account balances in Q2 2015 reached 68.39. Current balance in Q2 as a percentage of GDP is 8.2%.
- Greece for 2013 is -4.89, and 2014 is -5.00 with each quarter between 2013 Q1 to 2015 Q2 ranging from a low of -2.76 in Q1 2013 to a high of 0.01 in Q2 2015. Account balance running Greece in Q2 2015 to 0.01. The current balance in Q2 as a percentage of GDP is 0.0.
- The United States for 2013 is -376.76, and for 2014 is -389.53 with each quarter between 2013 Q1 to 2015 Q2 starting from the lowest at -118.30 in Q1 2013 to the highest -81.63 in Q4 2013. United States "account balance currently in Q2 2015 is up to -109.68.Balance currently in Q2 as a percentage of GDP is -2.4%.
The report also compares countries on the balance of services, services exports, service imports, goods balances, goods exports and imports of goods in billions of dollars.
World Factbook data
World Factbook , a reference resource generated by the Central Intelligence Agency that collects data and publishes online reports that compare current state account balances. According to the World Factbook , "[c] the current account balance compares the trade in goods and services in a country, plus net income, and net transfer payments to and from around the world for the specified period. calculated based on exchange rates. "The top ten in their country list based on current account balances in 2014 are:
- Germany: $ 286,400,000,000
- China: $ 219,700,000,000
- Netherlands: $ 90.160.000.000
- South Korea: $ 89.220.000.000
- Saudi Arabia: $ 76,920,000,000
- Taiwan: $ 65,420,000,000
- Russia: $ 59.46 million
- Singapore: $ 58.770 million
- Qatar: $ 54,840,000,000
- United Arab Emirates: $ 54.630.000.000
On the same list, the bottom ten countries under the current account balance in 2014 are
- 185. Mexico: - $ 24,980,000,000
- 186. Indonesia: - $ 26,230,000,000
- 187. France: - $ 26,240,000,000
- 188. India: - $ 27.53 million
- 189. EU: - $ 34,490,000,000 (2011 est)
- 190. Canada: - $ 37,500,000,000
- 191. Australia: - $ 43.750.000.000
- 192. Turkey: - $ 46,530,000,000
- 193. Brazil: - $ 103.6 billion
- 194. United Kingdom: - $ 173,900,000,000,
- 195. United States: - $ 389.500.000.000
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In a 2012 article published by the International Monetary Fund (IMF), the authors argue that account deficits run with higher investments and lower savings may indicate that a country's economy is highly productive and growing. If there is an excess of imports on exports, there may be a problem in terms of competitiveness. Low savings and high investment can also be caused by "reckless fiscal policy or consumption party." China's financial system supports the accumulation of large surpluses while the United States brings "a large and continuous current account deficit" that has created a trade imbalance.
The authors note that,
In addition, in practice, private capital often flows from developing to developed economies. Developed economies, such as the United States... have a current account deficit, while developing countries and emerging market economies often experience an approximate surplus or surplus. Very poor countries typically run large current account deficits, proportional to their gross domestic product (GDP), financed by grants and official loans.
See also
- List of countries based on current account balance
- Abundant global deposits
- FRED (Federal Reserve Economic Data)
- US. public debt
References
Further reading
- Carrasco, C. A. & amp; Peinado, P. (2014). In the origins of European imbalances in the context of European integration, Wpaper71, Finance, Economy, Society & amp; Sustainable Development Project (FESSUD).
External links
- What is the Drag Trade Deficit on US Economic Growth?
- The CIA Fact Book on Worldwide Account Ranking
- Current Account Surplus from New America Foundation
- Global Saving Glut and Current US Account Deficit from Abundant Global Savings
Source of the article : Wikipedia
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