What is the balance of payments? What are its components

The balance of payments is a statistical report 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.

The balance of payments in a narrow sense refers to the balance of payments from other countries that occurs due to various external exchanges within a certain period (a year, a quarter or a month) of a country (or region) and must be settled immediately. total foreign exchange receipts compared with total foreign exchange disbursements to other countries. All transactions involving foreign exchange receipts and payments during the reporting period fall within the scope of the balance of payments.

The broad balance of payments refers to the statistics of all international economic transactions generated by a country (or region) in a certain period of time (a year, a quarter or a month). It includes not only a country’s foreign exchange receipts and payments, but also various economic transactions that do not involve foreign exchange receipts and payments, such as bookkeeping trade and barter trade under clearing and payment agreements.

1. The concept of balance of payments

1. Balance of payments in a narrow sense: refers to the country’s external foreign exchange capital receipts and payments.

2. Balance of payments in a broad sense: refers to the income and payments arising from various economic transactions between a country and other countries (regions) in the world, including international economic transactions involving foreign exchange receipts and payments. , also includes international economic transactions that do not involve foreign exchange receipts and payments; includes not only international exchange activities, but also unilateral transfers and other activities such as gold monetization, allocation and cancellation of special drawing rights, and reclassification of claims and debts. are collectively referred to as foreign transactions. The current balance of payments statement commonly used by all countries is compiled according to the broad concept of balance of payments and reflects a country's external economic status.

The balance of payments is the comparative relationship between all the monetary funds received by a country from abroad and all the monetary funds paid to foreign countries in a certain period of time. If the balance of payments is equal, it is called balance of payments, otherwise it is called imbalance. When the total income is greater than the total expenditure, it is called the balance of payments surplus, or the balance of payments surplus; when the total expenditure is greater than the total income, it is called the balance of payments deficit, or the balance of payments deficit. Deficit represents external liabilities, which are usually paid with foreign exchange or gold.

The globally unified balance of payments system was established after the establishment of the International Monetary Fund. The International Monetary Fund first promulgated the first edition of the Balance of Payments Manual in 1948, and subsequently revised the manual in 1950, 1961, 1977 and 1993, constantly adding new content. At present, most of the member countries of the IMF adopt the 1977 fourth edition of the IMF's balance of payments concepts and classifications, and have begun to modify and enrich their national balance of payments statistical systems in accordance with the newly formulated classifications and requirements of the fifth edition. The preparation and provision of the balance of payments has become an obligation for the member countries of the International Monetary Fund and an important part of participating in the activities of other international economic organizations.

The balance of payments is a statistical table in which a country systematically records some economic activities conducted between the country and residents of other countries within a certain period of time (such as a year, half a year, or a quarter). , prepared according to the principle of double-entry bookkeeping. Some income items or items that increase liabilities or decrease assets are listed as credits, and some expenditure items or items that increase assets or decrease liabilities are listed as debits. Each economic transaction is divided into two related parties, the loan and debit, at the same time, and the amounts are equal. Therefore, in principle, the total debits and total credits of all items in the balance of payments are equal, and the net difference is zero. However, in reality, the debits and credits of a specific item in the balance of payments are often unbalanced. After the balance of payments is offset, a difference will always appear. Differences that occur on specific items are called local differences. When income is greater than expenditure, it is called surplus; when expenditure is greater than income, it is called deficit. The sum of all partial balances is the total balance of international payments, which is called balance of payments surplus or deficit, also known as balance of payments surplus or deficit. According to the methods and contents prescribed by the International Monetary Fund, the balance of payments includes three major items: current account, capital account, and errors and omissions.

The current account is one of the two main items in the balance of payments. It is used to count items such as goods, services, and unilateral transfers in the balance of payments. This project includes three aspects of specific content:

(1) The import and export of goods is the most important aspect of current account transactions, including the transfer of ownership of the vast majority of movable goods in cross-border transactions. Sometimes the ownership of goods has been transferred, but the goods have not yet entered or exited the country, and they should also be included in the import and export items of goods. These include: ships, aircraft, natural gas and oil drilling rigs, drilling platforms, etc.; goods salvaged by domestic ships and caught fish and other aquatic products are sold directly abroad; the domestic government purchases goods abroad and supplies them to another country Users; those who have obtained ownership of the goods at the time of import, but have been wet or damaged before entry. Although some commodities have entered and exited the country, but the ownership has not changed, they are not included in the import and export items. For example, goods that have been processed, transformed, packaged, repaired, and modified before being shipped to foreign countries for sale, but the value added after processing should be regarded as labor services provided to foreigners. In addition, included in the commodity import and export items are: gold and other precious metals and gemstones as general commodities, import and export commodities of the government, import and export commodities of direct investment enterprises, immigrants' belongings, smuggled goods, etc.

(2) Labor costs are the second largest component of the current account.

Mainly includes: transportation fees, insurance premiums and other ancillary expenses for goods, such as port fees, passenger cars, ship tickets and other labor costs on cars and ships, etc.; tourism, that is, tourists purchase for themselves or others during their stay in the country goods and services; investment income, including profit income from operating direct investment enterprises and dividend income from equity investors; and other goods and services income and expenditure, that is, official transactions, private transactions and private property income other than the above items. In addition, expenses such as salaries of embassy and consulate personnel, property income of domestic residents abroad, commercial sales other than import and export of goods, professional services and technical services, such as communication and computer services, financial services such as interest on loans, copyright and license fees , passenger insurance and other non-commodity insurance are also included in the labor expense item.

(3) Unilateral transfer of funds. It mainly includes immigration transfers, remittances from expatriates, government free aid, grants, administrative fees paid by the government to international organizations, etc.

The capital account is one of the two main items alongside the current account in the balance of international payments. It is used to calculate the capital balance of payments and mainly includes capital and reserves.

(1) Capital, mainly including direct investment, securities investment, etc. The former refers to a company, enterprise or individual from one country setting up an enterprise in another country to directly carry out production or commercial activities. The ownership of a business is concentrated in the hands of a single foreign investor or group of investors. Direct investment in the capital account of the balance of payments includes both foreign direct investment in the country and domestic direct investment in foreign countries. Portfolio investment is investment in long-term bonds and company stocks, such as the purchase of money market instruments and financial innovation instruments such as long-term treasury bonds, corporate bonds, notes, stocks and options by one country's companies, enterprises and individuals in another country. Many countries often regard a foreign investor or investor group's proportion of more than 10-25% of voting shares as direct investment. In addition, the capital account also includes some other capital transaction activities not included in the above two investments, such as trade credit, loans, currency and deposits. The principal part of the credit is recorded in the capital account, while the interest is recorded in the current account.

(2) Reserve items are actually a means used by a country to balance the international balance of payments or intervene in the foreign exchange rate of its own currency. Reserve items mainly include monetary gold (that is, gold officially held by a country for use as monetary funds), foreign exchange reserves, the Special Drawing Rights of the International Monetary Fund and the reserve positions of the International Monetary Fund member countries in the Fund, foreign exchange, Such as currency, deposits, transferable, discounted securities and other claims, etc.