Most Developing Countries (Excluding Oil-Producing Countries) Have Incurred Huge Balance-of-Payments Deficits for Many Years. What Alternatives Are Available to These Countries for Dealing with Their Balance-of-Payments Problems?

Topics: International economics, Macroeconomics, Balance of payments Pages: 4 (1387 words) Published: August 17, 2013
How well do countries, companies or individuals, keep track of the millions of transactions that take place annually among exporters and importers, international banks, and multinational companies? The bankers who tabulate the foreign exchange dealings of their own banks are only a part of the picture. How well can we account for the part of direct investment that occurs through over- seas borrowing, yet affects the home country’s international economic position? Even more simply, how well can we measure “international” transactions that are simply transfers of funds from the account of an importer to the account of a foreign exporter in the same bank? The realistic answer to these questions is: not very well. National governments create elaborate accounts for the transactions between their residents and foreign residents, but it is often very difficult to obtain full and accurate information. Putting that problem aside for the moment, let us consider the methods that governments use to record each country’s international transactions. The most widely-used measure of international economic transactions for any country is the balance of payments (BOP). This record attempts to measure the full value of the trans- actions between residents of one country and residents of the rest of the world for some time period, typically one year. The balance of payments is a flow concept, in that it records flows of goods, services, and claims between countries over a period of time, rather than a stock of accumulated funds or products. It is a value concept, in that all the items recorded receive a monetary value, denominated in the given country’s currency at the time of those transactions. The balance of payments thus is a record of the value of all the economic transactions between residents of one country and residents of all other countries during a given time period. Why do countries worry about measuring these transactions? According to Griffin and Pustay (2010) Country...
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