Balance of Payment

Balance of Payment

Introduction

The BOP registers the international financial position of a country, using a double-entry bookkeeping approach to tabulate the market value of the transactions in financial assets, services, and goods between the country's residents and the residents of the rest of the world. Like gross domestic product (GDP), the BOP encompasses transactions in goods and services produced during the year, but, unlike the GDP, the balance also encompasses transactions in assets. In addition to categorizing international transactions as debits or credits, the BOP separates private transactions in goods and services into the current account and transactions in assets into the capital account. Official government transactions, undertaken to affect the exchange rate, are typically separated from private transactions in BOP accounting (Mark, 2001).

While nations had been aware of the relationship between their exports and imports since they first coalesced into discernable entities and began to trade, in history of economic analysis, Joseph Schumpeter likens the conceptualization of the BOP to an idea that has been vaguely known for centuries without being fully understood. Schumpeter credits Antonio Serra with having the first “clear conception” of the BOP in 1613. While Serra recognized and understood many of the mercantilist ideas, according to Schumpeter, his “most important point” was an understanding of the connection between a country's BOP position and its domestic economic situation(Faust, 1998).

A strong fiscal response and an expansionary monetary policy have ensured that China has led the global recovery. At the same time, important progress has been made in a range of structural areas which will contribute to a rebalancing of the economy. The challenge now will be to sustain this strong growth performance while switching decisively to an economy that is powered by the Chinese consumer. The following graphs show the China Robust recovery in term of export(Friedman, 1999).

Structure of Balance of Payments

The BOP categorizes international transactions along several interrelated lines. First, any transaction on the BOP is either a credit or a debit. A transaction that involves a payment received from foreign residents, due to the international sales of goods, services, or assets by domestic residents, is a credit on a country's BOP; a transaction that involves a payment to foreign residents is a debit(Klitgaard, 1998). Second, the BOP classifies international transactions as either autonomous or accommodating. An autonomous transaction is undertaken independently of any other international transaction and gives rise to an accommodating transaction. Finally, the BOP accounts decompose international transactions into current account transactions, which represent trade in currently produced goods and services and capital account transactions, which represent trade in assets (Graboyes, 1994).

Current account and capital account balances

Finally, the BOP accounts decompose international transactions into current account transactions and capital account transactions. The current account mainly consists of trade in currently produced goods and services that are produced during the current year. All imports and exports as well as unilateral transfers, such as international gifts, go in the current account. Investment income goes in the current account, as well, because ...