Balance of Payments
Balance of payments is a country's set of accounts with the rest of the world, reflecting the relation between the payments of all kinds made from one country to the rest of the world and its receipts from all other countries. The accounts can be divided into the current account and the capital account. The current account is that part of the balance-of-payments account which shows all payments made or received in respect of goods and services, including payments of interest on past lendings or borrowings.
Thus, the current account or the balance of trade consists of several items:
- Visible trade is the imports and exports of tangible goods such as plant and machinery, consumer goods, raw materials.
- Invisible trade is trade in services such as banking, insurance, transportation and tourism.
- Transfer payments are things like the remittances of migrant workers to their homeland and the payment of dividends and interest to foreign companies, governments and international organizations.
- Unrequited exports are exports which are not exchanged for current imports, but the value of which pays interest on loans raised abroad, or profits on investment made in the home country by foreigners.
The capital account is that part of the balance of payments account which shows all payments made or received by way of settling old debts or creating new debts. It deals with financial transactions. The capital account consists of long-term investment - either direct foreign investment (e.g. a company in one country buying a company in another), or portfolio investment (e.g. a foreigner buying shares on Wall Street) - and short-term capital flows of "hot money".
Many countries are faced with a severe balance-of-payments problem which arises from different local circumstances.
Britain, for instance, is a densely populated island and it has few natural resources left. Britain has problems to supply industry with its requirements. They have to import large quantities of food, minerals, timber, etc. In exchange, they sell large quantities of manufactured goods. Thus, the balancing of imports and exports is a permanent problem to the Government. The Treasury keeps the balance of imports and exports constantly under review.
The visible trade balance is almost always an adverse one and they should be permanently in debt to other countries were it not for the invisible items which are a second source of foreign earnings.
Britain's surplus on invisible earnings arises partly from their traditional skills and services, particularly in commerce, banking, insurance and finance. It also arises from Britain's overseas holdings of property and business enterprises. Besides, in Britain, with its large merchantile marine the earnings from shipping are an important source of foreign revenue.
In the US, exports of manufactured goods and farm goods are more than offset by imports of raw materials, expecially oil.
Governments may influence the balance of payments through measures of fiscal policy or monetary policy designed to affect levels of domestic demand or interest rates.
Words you may need:
balance of paymentsплатежный баланс
unrequited exportsнекоммерческий экспорт
to settle a debtурегулировать долг
denselyadv плотно, густо
invisible earningsпоступления от невидимого экспорта
merchantile marineторговый флот
offsetvкомпенсировать, сводить на нет
Ex. 18. a) Read the article quickly and underline the parts about the challenge the transition economies face and the constraints affecting the ability of the governments to meet the challenge.
EFFECTIVE FISCAL POLICY | VOCABULARY LIST | EXERCISES | A) Financial Policy | B) Fiscal Policy in the UK | B) Write down 3-5 questions about the text. | B) Sum up the text in 5-7 sentences and present your summary in class. | A) Multiyear Budgeting | B) Types of Budget Classification | A) Fiscal Policy in Transition Economies: a Major Challenge |