Concept and Types of Transactions. National accounts.

Broadly speaking, changes in economic relationships registered by the balance of payments stem primarily from dealings between two parties.

These parties are, with one exception, a resident and a nonresident, and all dealings of this kind are covered in the balance of payments.

Despite the connotation, the balance of payments is not concerned with payments, as that term is generally understood, but with transactions. A number of international transactions that are of interest in a balance of payments context may not involve the payment of money, and some are not paid for in any sense. The inclusion of these transactions, in addition to those matched by actual payments, constitutes a principal difference between a balance of payments statement and a record of foreign payments.

Exchanges

The most numerous and important transactions found in the balance of payments may be characterized as exchanges. A transactor (economic entity) provides an economic value to another transactor and receives in return an equal value. The economic values provided by one economy to another may be categorized broadly as real resources (goods, services, income) and financial items.

Transfers

Transactions involving transfers differ from exchanges in that one transactor provides an economic value to another transactor but does not receive a quid pro quo on which, according to the conventions and rules adopted for the system, economic value is placed.

This absence of value on one side is represented by an entry referred to as a transfer. Such transfers (economic value provided and received without a quid pro quo) are shown in the balance of payments. Current transfers are included in the current account and capital transfers appear in the capital account.

Migration

Migration occurs when the residence of an individual changes from one economy to another because the person moves his or her abode. Certain movable, tangible assets owned by the migrant are, in effect, imported into the new economy.

Other imputed transactions

In some instances, transactions may be imputed and entries may be made in balance of payments accounts when no actual flows occur. Attribution of reinvested earnings to foreign direct investors is an example. The earnings of a foreign subsidiary or branch include earnings attributable to a direct investor. The earnings, whether distributed or reinvested in the enterprise, are proportionate to the direct investor’s equity share in the enterprise.

Reinvested earnings are recorded as part of direct investment income. An offsetting entry with opposite sign is made in the financial account under direct investment-reinvested earnings to reflect the direct investor’s increased investment in the foreign subsidiary or branch.

Balance of Payments and National Accounts

Conceptually, balance of payments accounts and related data on the international investment position are closely linked to a broader system of national accounts that provides a comprehensive and systematic framework for the collection and presentation of the economic statistics of an economy. The international standard for this framework is the System of National Accounts (SNA), which encompasses transactions, other flows, stocks, and other changes affecting the level of assets and liabilities from one accounting period to another. Linkage of the balance of payments and the SNA is reinforced by the fact that, in almost all countries, balance of payments and international investment position data are compiled first and subsequently incorporated into national accounts.

Date: 2014-12-28; view: 991