Among all the items listed in the balance of payments, except for errors and omissions, all other items represent actual transactions, involving foreign exchange receipts and payments, and related to the international balance of payments. The balance of the balance sheet is also related to the balance of a country's international payments. Therefore, when examining whether a country's international balance of payments is balanced, it is necessary to examine the total results of transaction activities represented by all items except errors and omissions.
Each item on the balance of payments can be divided into two types: one is Autonomous Transactions, or EX—Ante Transactions, which is an economic entity Or transactions conducted independently by individuals for certain economic motives and purposes, such as the pursuit of profits, asset preservation, tax evasion, evasion of regulations or speculation, etc. Autonomous trading is spontaneous, so the balance in the trading results is accidental, and the imbalance is inevitable. When an imbalance occurs, it will cause supply and demand imbalances in the foreign exchange market and exchange rate fluctuations, which will bring about a series of economic impacts. If a country's monetary authority is unwilling to accept such a result, it must use another type of transaction to make up for the gap in foreign exchange supply and demand caused by the imbalance of autonomous transactions. Another type of transaction is Accommodating Transactions. It refers to various transactions conducted by the central bank and monetary authorities for the purpose of adjusting the balance of international payments, maintaining balance of international payments, and maintaining currency exchange rate stability. It is a compensatory transaction (Compensatory Transactions) carried out after the balance of payments is imbalanced in autonomous transactions, so it is also called Ex-Post Transactions (Ex-Post Transactions). Generally, various items of the current account and capital financial account are classified as discretionary transactions, while reserves and related items are classified as regulatory transactions.
Theoretically, if the debit amount and credit amount generated by autonomous transactions in a country's international balance of payments are equal or basically equal, it indicates that the country's international balance of payments is balanced or basically balanced; if the autonomous transaction Transactions that result in debit amounts that are not equal to credit amounts indicate an imbalance or disequilibrium in the country's balance of payments.
It should be said that there is no absolute balance of international payments. Generally speaking, revenue is slightly greater than expenditure, and the amount of reserves generated is 25% of the country's annual imports. Different countries are different. Developing countries have weak balance of payments capabilities and weak ability to respond to emergency international economic changes, and require higher surpluses. 1. The balance of payments is divided into the balance of payments in a narrow sense and the balance of payments in a broad sense.
The balance of payments in a narrow sense refers to the total external income and expenditure of a country within a certain period of time (usually one year).
The broad balance of payments includes not only foreign exchange receipts and payments, but also economic transactions in a certain period.
The International Monetary Fund defines the balance of payments as: The balance of payments is a statistical statement that systematically records the transactions between economic entities and other parts of the world within a certain period of time. Most transactions are between residents and non-residents.
(1) The balance of payments is a flow concept.
(2) The content reflected is economic transactions, including: the sale and purchase of goods and services, barter, exchange between financial assets, free one-way transfer of goods and services, free orders Transfers to financial assets.
(3) The economic transactions recorded are between residents and non-residents.
[Edit this paragraph]
Balance of payments
The balance of payments refers to the balance of payments based on the needs of economic analysis. A statistical report prepared based on accounting principles and specific account classifications. It reflects the structure and overall situation of a country's international balance of payments.
When preparing the balance of payments, each item needs to be classified, divided into several accounts, and arranged as needed, which is the so-called account classification. The "Balance of Payments Manual" (Fifth Edition) published by the International Monetary Fund provides the account classification standard for the balance of payments, which is divided into two major accounts: current account, capital and financial account. Countries can classify the accounts according to their own specific conditions. Make the necessary adjustments.
1. Current account
The current account records the flow of actual resources, including goods and services, income, and current transfers.
1) Goods and services. Goods refer to goods imported and exported through customs. Based on the customs' import and export statistics, changes in ownership of the goods are recorded. Imports and exports are priced on a free-on-board (FOB) basis. Services include transportation, tourism, communications, construction, insurance, financial services, computer and information services, exclusive royalties and license fees, various business services, personal cultural and entertainment services, and government services.
2) Income. Income includes employee compensation and investment income. Employee compensation refers to the income received and repatriated by domestic residents working abroad (within one year) and the wages and benefits paid to foreign employees (within one year). Investment income includes profit interest income and reinvestment income under direct investment, securities investment income (dividends, interest, etc.) and other investment income (interest).
3) Frequent transfers. Current transfers mainly include remittances, free donations, compensation and other items, including physical and financial forms.
2. Capital and financial accounts
Capital and financial accounts record the international flow of capital, including capital accounts and financial accounts.
1) Capital account. The capital account includes capital transfers and transactions in non-produced, non-financial assets. Capital transfers mainly include fixed asset transfers, debt relief, immigration transfers, investment donations, etc. Non-produced, non-financial asset transactions refer to the transfer of ownership of tangible assets (land and underground resources) and tangible assets (patents, copyrights, trademarks, distribution rights, etc.) that are not produced.
2) Financial account. Financial accounts record transactions that change an economy's external assets and liabilities, including direct investment, securities investment, other investments and reserve assets. (1) Direct investment. Direct investment is an investment in which an investor seeks to obtain an effective say in operating a business outside his or her home country. (2) Securities investment. Securities investment includes two major types of securities investment forms: equity securities and debt securities. Debt securities can be further subdivided into medium- and long-term bonds, money market instruments and other derivative financial instruments. (3) Other investments. Other investments refer to all financial transactions other than direct investment and securities investment, which are divided into trade credit, loans, currency and deposits, and other assets and liabilities. (4) Reserve assets. Reserve assets refer to the external assets owned by monetary authorities such as central banks, including monetary gold, foreign exchange, special drawing rights and reserve positions with the International Monetary Fund.
In addition, the balance of payments also includes net errors and omissions. Net errors and omissions are items set to offset statistical deviations based on accounting needs when there is an imbalance between lenders and borrowers in the balance of payments.
my country's balance of payments statement is based on the International Monetary Fund's "Balance of Payments Manual" (fifth edition). The main difference is that reserve assets are listed separately, so this statement It includes four major items: current account, capital and financial account, reserve assets, net errors and omissions.
[Edit this paragraph]
Analysis of the balance of international payments
Analysis of the balance of international payments
1. International Balance of payments analysis method and content:
(1) Analyze each item and content recorded on the balance of international payments, especially the content of current account and capital account.
(2) Analyze the balance of each item on the balance of international payments and their relationship with the total balance
(3) Continuously analyze the international balance of payments in several periods from static to dynamic Balance of payments statement
(4) Analyze and compare the balance of payments statements of several different countries
2. Significance: The balance of payments is the main tool for economic analysis. A country’s international The balance of payments records all economic and financial transactions with countries around the world, reflecting the country's foreign economic characteristics and the impact of changes on international finance. Therefore, a careful and comprehensive analysis of the balance of payments is of great significance for understanding domestic and foreign economic conditions and formulating corresponding measures.
[Edit this paragraph]
Balance of payments and macroeconomics
(1) Balance of payments and national accounts
(2) ) The relationship between factor income and macroeconomic accounts
(3) The relationship between the balance of payments and domestic currency circulation
[Edit this paragraph]
The balance of payments Adjustment
1. Judgment of imbalance in the balance of payments
To determine whether the balance of payments is balanced, the usual method is to compare the international economic transactions recorded in the balance of payments statement according to the transaction The different entities and transaction purposes are divided into autonomous transactions and regulatory transactions. Identifying whether the international balance of payments is balanced by transaction entities and transaction motivations provides us with a way of thinking and a basic framework, which is correct in theory, but there are certain technical difficulties in practice. In practice, the observation of whether the balance of payments is balanced usually involves a specific comparative analysis of several major balances in the balance of payments under the basic framework of comparing autonomous transactions and regulatory transactions.
II. Causes of international balance of payments imbalances and the necessity of adjustment
The main causes of international balance of payments imbalances are: cyclical imbalances; structural imbalances; income imbalances and monetary imbalances imbalance.
The necessity of adjusting the international balance of payments imbalance lies in the following: a sustained huge international balance of payments deficit will consume a large amount of international reserves, leading to domestic deflation and production decline; it will weaken the country's currency and national credit in the international arena. status; if the deficit is mainly caused by capital outflows, it will cause a shortage of funds in the country, interest rates will rise, and the country's consumption and production will decline; if the deficit is mainly caused by imports being greater than exports, it will lead to insufficient employment in the country, Unemployment increased and national income fell. Sustained huge international balance of payments surplus will cause the local currency exchange rate to rise, inhibit exports, and weaken the international competitiveness of domestic goods; it will cause a large increase in international reserves, increase domestic money supply, and trigger inflation; if the surplus is mainly caused by exports being greater than imports It will reduce domestic production resources and affect the country's economic development; it will easily cause friction with major trading partners and is not conducive to the normal development of international economic relations.
(1) Classification of imbalances in the balance of payments
Imbalances in the balance of payments are absolute and constant, while balance is relatively accidental.
1. Cyclical imbalance, an imbalance caused by the different stages of countries in the world. The economic cycle generally consists of four stages, crisis---depression---recovery---prosperity. When a country is in a prosperous stage and its trading partners are in a recession stage, it is easy to cause a trade balance deficit of the country.
2. Structural imbalance, an imbalance in the international balance of payments caused by changes in the international market's demand conditions for the country's exports and imports and the inability to adjust the country's trade structure.
3. Monetary imbalance, an imbalance in the international balance of payments caused by a country's price level, cost, exchange rate, interest rate and other monetary factors.
4. Income imbalance is an imbalance in the international balance of payments caused by the relatively rapid growth of a country's national income, causing import growth to exceed export growth.
(2) The adjustment theory of the international balance of payments
Mainly focuses on the determinants of a country's international balance of payments and the appropriate policies to maintain the balance of international payments.
1. Elasticity Theory
Also known as the elasticity analysis method, its representative is the British economist Robinson. This theory studies the impact of exchange rate changes on the adjustment of a country's international balance of payments when income conditions remain unchanged. It does not consider the flow of international capital and treats the balance of payments on goods and services as the international balance of payments.
The basic principle: Exchange rate changes affect a country's supply and demand through relative price changes between domestic and foreign goods, domestically produced tradable goods and non-tradable goods, thereby affecting the international balance of payments.
This theory assumes that the supply elasticity of exported goods and imported goods is infinite. After currency depreciation, the country's export quantity increases with the increase in exports - the price of exports in local currency remains unchanged, and export revenue rises; while the quantity of domestic imports decreases with the decrease in import demand, the price of imported local currency rises, and the price of imported local currency may rise or fall.
This theory believes that only when the sum of the demand elasticity of export goods and the demand elasticity of imported goods is greater than 1, the trade balance conditions can be improved. This is the condition for the success of devaluation, that is, the Marshall-Lerner condition.
This theory assumes that the supply elasticity of import and export commodities is infinite, which is inconsistent with reality. In actual economic life, the actual changes in import and export after exchange rate changes also depend on the degree to which supply reflects price.
In the long run, the Marshall-Lerner condition holds true, but in the short term, for a period of time after the devaluation, contracts signed before the devaluation need to be implemented, production adjustments also take a certain amount of time, and people's expectations are for further depreciation. And speed up ordering. Only after a certain period of adjustment can trade balance conditions improve.
2. Absorption theory
Its representative is Adrian Alexander. This theory is based on the national income equation in Keynes’ macroeconomic theory and focuses on examining the relationship between total income and total expenditure. Impact on the balance of payments. Under open economic conditions, the national income account can be expressed as
National income (y) = consumption (c) + investment (i) + (export (x) - import (m)),
Can be transformed into:
X-M=Y-(C+I)
Suppose X-M=B B represents the balance of international payments
A=C+ I A represents total domestic expenditure
B=Y-A
When national income is greater than total absorption, the balance of payments is a deficit; otherwise, the balance of payments is a surplus. The balance of payments adjustment policies based on the absorption theory are mainly based on policies that change total income and total absorption, that is, expenditure conversion policies and expenditure increase or decrease policies. When a deficit occurs, it means that total demand exceeds total supply, that is, total absorption exceeds total income. Tightening fiscal policies and tightening monetary policies should be adopted to reduce the demand for tradable goods; but at the same time, it will also reduce the demand for non-tradable goods and total revenue, expenditure conversion policies must be used to eliminate the adverse effects of austerity policies.
3. Monetary Theory
Its founders are Harry Johnson and his students in England. This theory is based on the monetary theory and examines the causes of international balance of payments imbalances from a monetary perspective. The assumptions of monetary theory are:
(1) Under conditions of full employment, a country's actual money demand is a stable function of income and interest rates.
(2) In the long run, the money demand function is stable, and changes in money supply do not affect physical output.
(3) The price level of traded goods is determined by the world market. In the long run, a country's price level and interest rate level are close to the world market price level.
The basic principles of monetary theory include the following money demand and supply equations:
Md=Pf(y,i)`
Md represents money demand, P Domestic price level, f represents the functional relationship, i is the interest rate, and y represents national income.
Ms=D+R
Ms represents money supply, D refers to domestic loans through the banking system, and R refers to surplus reserves obtained through the balance of payments. This equation shows that the domestic money supply is affected by two mechanisms, one is domestic credit and the other is the balance of payments surplus. If money supply equals money demand, then
Ms=Md
Md=D+R
The basic principle contained in this equation: The balance of payments is a A currency phenomenon, that is, a surplus or deficit in the international balance of payments is determined by the equilibrium between domestic money demand and money supply; a domestic balance of payments surplus indicates that domestic money demand is greater than money supply, and excessive money demand is met by international reserves. ; Domestic balance of payments deficit indicates that domestic money supply is greater than money demand; international balance of payments problems reflect the adjustment process of real money balances to nominal money supply. When the domestic nominal money supply is consistent with the demand for real money balances reflected by real economic variables, the balance of payments is in equilibrium. The policy propositions of monetary theory are:
a. Monetary policy can be used to solve the imbalance in the balance of payments.
b. Monetary policy mainly refers to money supply policy. Expansionary monetary policy can reduce the surplus, and contractionary monetary policy can reduce the deficit.
c. Trade and financial policies such as devaluation, import restrictions, and tariffs adopted to balance the international balance of payments can only improve the international balance of payments if they increase currency demand, especially the domestic price level. However, if it is accompanied by domestic inflation, the international balance of payments may not necessarily improve.
4. Structural Theory
Its representative figures are Paul Stephen and others. This theory believes that the balance of payments deficit, especially the long-term balance of payments deficit, can be caused by long-term excessive demand or long-term insufficient supply.
Structural factors causing long-term deficits include: aging economic structure, single economic structure, and backward economic structure.
Structural theory believes that adjustment policies should mainly focus on improving economic structure and economic development to increase the quantity and variety supply of export commodities and import substitutes. The main means are to increase investment and improve the mobility of resources, so that labor and production factors can successfully flow from traditional sectors to emerging industries.
Measures of the balance of payments adjustment policy
The balance of payments adjustment policy, when a deficit occurs, can take the following measures:
1. Foreign exchange buffer policy, Refers to a country using changes in official reserves or temporarily raising funds externally to offset excess foreign exchange supply or demand. This method can finance one-time or seasonal balance of payments deficits. This policy is affected by the size of reserves and is only suitable for smaller short-term balance of payments deficits.
2. Fiscal and monetary policies. When a deficit occurs, tightening fiscal policies can be adopted. This policy can reduce expenditures on goods and services, thereby reducing imports; adjust the price ratio of domestic goods to foreign goods to promote exports; increase domestic interest rates and improve the status of the capital account. Its limitations: Improving the international balance of payments often comes at the expense of the domestic economy.
3. Exchange rate policy, using exchange rate changes to eliminate the balance of payments deficit, mainly depends on the following conditions:
(1) Whether the sum of import and export demand elasticities complies with Marshall-Lerner condition.
(2) Whether the country has surplus production capacity that can be utilized to increase the production capacity of export commodities.
(3) Whether the relative price advantage of domestic traded goods and non-traded goods brought about by devaluation can be maintained for a period of time, and whether the inflation caused by exchange rate depreciation can be accepted by society.
(4) Direct control, including foreign exchange control and trade policy control, whether the control will cause retaliation from trading partner countries.