Home > Balance of payments
The balance of payments is a simple measure of the payments in financial capital that flow from one nation to another. If more money flows in than out, one has a positive balance of payments - if more flows out than in, one has then a negative balance. The money flowing over the border is like other money paying for goods, commodities, real estate, services, securities.It's usually separated into:
Money coming in (+), or leaving (-):
- + Exports
- - Imports
- - Increase of owned assets abroad
- + Increase of foreign-owned assets in the country
A negative current account must by definition be balanced by a positive financial account . The US have been running a negative current account for a long while, which is financed through a positive financial account. The only way to buy more than you sell is to borrow money.
Historically these flows simply were not carefully measured, and the flow proceeded in many commodities and currencies without restriction, clearing being a matter of judgement by individual banks and the governments that licensed them to operate. Mercantilism was a theory that took special notice of the balance in payments and sought simply to monopolize goldFor alternative meanings, see gold (disambiguation Gold is a chemical element in the periodic table that has the symbol Au ( L. aurum and atomic number 79. A soft, shiny, yellow, heavy, malleable, ductile (trivalent and univalent) transition metal, gold d, in part to keep it out of the hands of potential military opponents (a large "war chest" being a prerequisite to start a war, whereupon much trade would be embargoed).
As mercantilism gave way to classical economicsClassical economics is a school of economic thought whose major developers include William Petty, Adam Smith, David Ricardo, and John Stuart Mill. It is seen by many as the first modern school of economic thought. Some authors, such as John Maynard Keynes, these crude systems were later regulated in the 19th centuryAlternative meaning: Nineteenth Century (periodical ( 18th century — 19th century — 20th century — more centuries) As a means of recording the passage of time, the 19th century was that century which lasted from 1801- 1900. Events The Little Ice Age ended by the gold standardThis article is on the monetary principle. For gold standard in diagnostic testing see gold standard (test The gold standard is a monetary system in which the standard economic unit of account is a fixed weight of gold. When several nations are on a fixed which linked central bankAlthough officially state owned in most countries, the central bank is usually an autonomous entity responsible for the stability of the national currency see also money and the national financial system as a whole. Furthermore it designs and implements ms by a convention to redeem "hard currency" in gold. After World War IIWorld War II was the most extensive and costly armed conflict in the history of the world, involving the great majority of the world's nations, being fought simultaneously in several major theatres, and costing tens of millions of lives. The war was fough this system was replaced by the Bretton WoodsThe Bretton Woods system of international economic management established the rules for commercial and financial relations among the major industrial states. The Bretton Woods system was the first example of a fully negotiated monetary order in world hist institutions (the International Monetary FundThe International Monetary Fund IMF is an international organization responsible for managing the global financial system and for providing loans to its member states to help alleviate balance of payments problems. Part of its mission is to help countries and Bank for International Settlements) which pegged currency of participating nations to the US dollar, which was redeemable nominally in gold. In the 1970s this redemption ceased, leaving the system without a formal base. Some consider the system today to be based on oil, a universally desirable commodity due to the dependence of so much infrastructural capital on oil supply . Since OPEC prices oil in US dollars, the US dollar remains a reserve currency, but is increasingly challenged by the euro, and to some degree the yuan (which is not traded outside China legally, but due to this is almost immune to any degree of chaos on the world's financial markets).
The balance of trade is a more fundamental measure of underlying goods and services, rather than the money that pays for them. Obviously the two are related to some degree, or else trade and payments would probably not continue.
