Balance of payments

The balance of payments is an accounting statement of the transactions of a country the rest of the world. The current account of the balance of payments is made up of the visible balance, consisting of receipts for exports minus payments for imports, and the invisible balance consisting of income less expenditure for services (such as banking, insurance, shipping and tourism) plus profits and interest from abroad. The capital account of the balance of payments is the net financial inflow from incoming investments from overseas and outgoing overseas investment by domestic investors, together with the net inflow of international grants and loans. By definition, a negative current account balance (ie a current account outflow) is always balanced by an equal positive account balance (ie a capital account inflow), and vice versa.

In principle the balance of payments can be influenced by four possible policy measures

• the use of domestic currency reserves;
• action to alter the rate of inflation;
• exchange rate changes ;
• restrictions upon domestic access to foreign exchange (exchange controls).