SIE: Balance Of Payments

Balance of Payments

The balance of payments is a record of a country’s international economic activity over a period of time—usually quarterly or annually. The balance of payments is used to track the flow of money (capital) in and out of an economy. It’s like an accounting statement for the international economic activity of a country, and like any accounting statement, transactions that cause money to flow into the country are credits to the account, and transactions that cause money to flow out are debits.

The balance of payments statement divides international transactions into three accounts—the most important being the current account. The current account tracks imports and exports of goods and services. The capital account and the financial account record asset and capital transfers, such as U.S. investment abroad and foreign investment in the U.S. In theory, the balance of payments should net to zero. The value of funds flowing into the U.S. should always equal the value of funds flowing out.

Of concern to economists and policy makers is the current account bala