The current account is an important measure for any country because it measures the current business activity, direct investment and asset success of the country`s residents. It is also important in the context of the balance of payments that a country uses to accurately measure its financial surpluses or deficits. More specifically, the current account corresponds to: trade in goods (visible balance) trade in services (invisible balance) e.B insurance and services Investment income e.B. Dividends, interest and migrantsTransfers from abroad Net transfers – e.B. International aid The current account consists mainly of exports – imports (+net international investment position) A current account deficit is usually accompanied by a depletion of foreign currency holdings, as these reserves would be used for investment abroad. The deficit could also lead to an increase in foreign investment in the local market, in which case the local economy is forced to pay the returns on investments to the foreign economy in the future. On the same list were the ten most national countries by current account in 2014 The current account is a country`s trade balance plus net income and direct payments. The trade balance is the import and export of goods and services from a country. The current account also measures international capital transfers: a trade deficit concerns only the trade balance with visible goods. This trade deficit is part of the current account. The UK often has a trade deficit, but a services surplus. In the net income account of factors or income, income payments are income outflows and inflows. Income is investment income made abroad (note: investments are recorded in the capital account, but investment income is recorded in the current account) and money sent by people working abroad, called remittances, to their families at home.
If the income account is negative, the country pays more than it earns in interest, dividends, etc. A current account is balanced when residents of the country have enough to fund all purchases in the country. Residents include people, businesses and government. Funds include income and savings. Purchases include all consumer spending, as well as business growth and government infrastructure spending. But also a cash flow from China to the United States – via the financial account to finance the purchase of imported goods. Where CA is the current account, X and M are each the export and import of goods and services, NY is the net income from abroad and NCT is the net current transfer. Trade accounts for most of the (performance) bill, trade (buying and selling) goods and services between countries.
The calculation of a country`s current account balance (CAB) indicates whether it has a deficit or a surplus. If there is a deficit, does that mean the economy is weak? Does a surplus automatically mean that the economy is strong? Not necessarily. When an economy runs a current account deficit, it absorbs (absorption = domestic consumption + investment + government spending) more than it produces. This can only happen if other economies lend it their savings (in the form of debt or direct/portfolio investment in the economy) or if the economy exploits its foreign assets such as the official foreign exchange reserve. The current account can be divided into four components: trade, net income, direct capital transfers and property income. The current account is part of a country`s balance of payments. The other two parts are the capital accounts and the financial accounts. On the other hand, when an economy has a current account surplus, it absorbs less than it produces. This means that he saves.
As the economy is open, this savings is invested abroad and thus foreign wealth is created. The capital account is part of a country`s balance of payments and provides a summary of a country`s investment expenditure and revenue. Sometimes the capital account is called a financial account, with a separate, usually very small, capital account listed separately. The summary of transactions includes imports and exports of goods, services, capital and transfer payments such as foreign aid and remittances. Essentially, the capital account measures changes in national ownership of assets, while the current account measures the country`s net income. The current account of the balance of payments measures the inflows and outflows of goods, services, investment income and transfer payments. With no change in official reserves, the current account mirrors the sum of the capital and financial accounts. One might then ask: is the current account guided by capital and the balance sheet or vice versa? The traditional answer is that the current account is the most important causal factor, with capital and financial accounts simply reflecting the financing of a deficit or the investment of funds resulting from a surplus. Recently, however, some observers have suggested that the opposite causal relationship may be important in some cases. In particular, it has been controversially suggested that the U.S.
current account deficit is driven by the desire of international investors to acquire U.S. assets (see Ben Bernanke,[5] William Poole links below). However, the main view remains undoubtedly that the causal factor is the current account and that the positive capital account reflects the need to finance the country`s current account deficit. [Citation needed] Depending on the period of economic growth of the nation, its objectives and, of course, the implementation of its economic program, the state of the current account is relative to the characteristics of the country in question. For example, a donation-funded surplus may not be the most prudent way to manage an economy. A country`s current account is influenced by many factors – its trade policy, exchange rate, competitiveness, foreign exchange reserves, inflation rate, etc. Since the trade balance (exports minus imports) is generally the main determinant of the current account surplus or deficit, the current account often shows a cyclical trend. During a strong economic expansion, import volumes generally increase; If exports cannot grow at the same pace, the current account deficit will widen […].
