Balance of Payments in Foreign Exchange

A country's economic relationships with other countries is measured by the tabulation called the balance of payments, which is also useful for examining flows of exchange between trading countries.

The modern balance of payments presents, in tabular form, a summary of all the international economic transactions of a nation with another country, a group of countries, international organizations, or the rest of the world.

The balance of payments do not show totals; it shows only the movement of the items included for the period covered. More than a hundred members of the IMF now prepare these statements, which are published in a uniform format by the IMF, in its Balance of Payments Yearbooks.

The balance of payments of the United States is published in these yearbooks, but the primary source of U.S. balances of payments, in a format that differs from the one used by the IMF, is the monthly periodical of the U.S. Department of Commerce, the Survey of Current Business, and the supplements to the Survey.

The full and official United States balance of payments, as carried in the survey, is a highly technical tabulation of 64 rows of figures. It is based on the accounting principle of credit and debit, respectively, by either a positive sign (+) or no sign; and the negative sign (-). The positive sign items represent transactions that give rise to currency receipts from overseas, and the negative sign items, to those who gave rise to payments to overseas residents.

The balance of payments thus indicate the sources and magnitudes of the supply (receipts) of foreign currencies, and the demand (payments) for them, during the period covered.

Nevertheless, the terms "balance of payments surplus" and "balance of payments deficit" continue to be employed. As used, they refer to the increase (surplus) or the decrease (deficit) of a country's gold stock, and certain highly liquid foreign short-term assets, that are readily convertible into other currencies, plus certain drawing rights on the IMF.

Those assets constitute a nation's international reserves. The balance of payments serves to indicate the movements of a nation's international reserves, and its ability to maintain its parity. It also serves to limit the fluctuations in its rates of exchange, and also continue to import, provide unilateral transfers, and invest abroad at its customary levels.

The international reserves are also the domestic reserves of the central bank, or the banking system of some nations, and their movement serves to condition, in part, the monetary supply.