(Why) Should Current Account Balances Be Reduced?
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The balance of payments BOP is the place where countries record their monetary transactions with the rest of the world. Transactions are either marked as a credit or a debit. Within the BOP there are three separate categories under which different transactions are categorized: the current account, the capital account and the financial account. In the current account, goods, services, income and current transfers are recorded. In the capital account, physical assets such as a building or a factory are recorded. And in the financial account, assets pertaining to international monetary flows of, for example, business or portfolio investments are noted.
Absent changes in official reserves, the current account is the mirror image of the sum of the capital and financial accounts. One might then ask: Is the current account driven by the capital and financial accounts or is it vice versa? The traditional response is that the current account is the main causal factor, with capital and financial accounts simply reflecting financing of a deficit or investment of funds arising as a result of a surplus.
However, more recently some observers have suggested that the opposite causal relationship may be important in some cases. In particular, it has controversially been suggested that the United States current account deficit is driven by the desire of international investors to acquire US assets see Ben Bernanke ,  William Poole links below. However, the main viewpoint undoubtedly remains that the causative factor is the current account and that the positive financial account reflects the need to finance the country's current account deficit.
Current account surpluses are facing current account deficits of other countries, the indebtedness of which towards abroad therefore increases. Increasing imbalances in foreign trade are critically discussed as a possible cause of the financial crisis since In , it was the highest deficit in the world. The net foreign assets of the US are therefore not deteriorating one to one with the current account deficits.
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The Organisation for Economic Co-operation and Development , OECD — an international economic organisation of 34 countries, founded in to "promote policies that will improve the economic and social well-being of people around the world"  — produces quarterly reports on its 34 member nations comparing statistics on balance of payments and international trade in terms of current account balance in billions of US dollars and as a percentage of GDP.
For example, according to their report the current account balance in billions of US dollars of several countries can be compared,. The report also compares countries on services balance, exports of services, import of services, goods balance, export of goods and imports of goods in billions of US dollars. The World Factbook ,  a reference resource produced by the Central Intelligence Agency that collects data and publishes online open reports comparing the current account balance of countries. These figures are calculated on an exchange rate basis.
In a article published by the International Monetary Fund IMF  the authors argue that a current account deficit with higher investments and lower savings may indicate that the economy of a country is highly productive and growing. If there is an excess of imports over exports there may be problems in terms of competitiveness. Low savings and high investment can also be caused by a "reckless fiscal policy or a consumption binge. The authors note that, . Moreover, in practice, private capital often flows from developing to advanced economies.
The advanced economies, such as the United States Very poor countries typically run large current account deficits, in proportion to their gross domestic product GDP , that are financed by official grants and loans. From Wikipedia, the free encyclopedia. This article is about the macroeconomic current account. For day to day bank accounts, see Current account banking. Main article: Balance of payments. Herman E. International Monetary Fund.
Balance of Payments - Current Account Deficits
Retrieved 24 December Current Account Deficit". Retrieved 16 July Mai , S.
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