Balance Of Payments Agreement Definition

The capital balance covers the net change in ownership of foreign assets. It includes the reserve account (the foreign exchange operations of a country`s central bank) as well as loans and investments between the country and the rest of the world (but not future interest and dividend payments generated by loans and investments, which are revenues and are recorded in the current account). When a country buys more foreign cash assets than the assets it sells in cash to other countries, the capital account is considered negative or loss-making. The balance of payments (BOP) is a list of all transactions between companies in a country and the rest of the world over a defined period of time, for example. B one quarter or one year. As has been said in the history section below, there has been a shift in opinion during the Washington Consensus period to think that there is no reason to worry about imbalances. After the 2007-2009 financial crisis, opinion again fluctuated in the opposite direction. The general opinion expressed by the leading financial press and economists, international bodies such as the IMF — as well as the leaders of surplus and deficit countries — has returned to the idea that large current account imbalances are significant. [10] However, some economists are relatively unoccupied with imbalances[11] and there have been claims, such as Michael P.

Dooley, David Folkerts-Landau and Peter Garber, that nations must resist the temptation to switch to protectionism to correct imbalances. [12] Balance of payments and foreign investment data are essential for the formulation of national and international economic policies. Certain aspects of balance of payments data, such as payment imbalances and foreign direct investment, are key issues that a country`s policymakers want to address. Under paragraph 11 of the Agreement, the Advisory Member is required to prepare a core document for in-depth consultations on: (a) an overview of the balance of payments situation and prospects, including consideration of internal and external factors that apply to the balance of payments situation and domestic policy measures taken to restore balance on a sound and sustainable basis; (b) a full description of the balance of payments restrictions, their legal basis and the measures taken to reduce unintended protective effects; (c) the measures taken since the last consultation on the liberalisation of import restrictions, taking into account the conclusions of the Committee; (d) a plan for the elimination or gradual relaxation of the remaining restrictions. Under simplified procedures, the country of consultation is required to provide a written declaration containing essential information on the same elements as those dealt with in the core document. Nations may agree to set their exchange rates against each other and then correct all imbalances resulting from rules-based and negotiated exchange rate changes and other methods. The Bretton Woods system was an example of a rules-based system. John Maynard Keynes, one of the architects of the Bretton Woods system, had wanted additional rules to encourage surplus countries to share the burden of rebalancing, arguing that they were in a stronger position to do so and viewing their surpluses as negative externalities imposed on the global economy. [47] Keynes proposed that traditional compensation mechanisms be complemented by the threat of recovering some of the excess revenue if the surplus country does not choose to spend it on additional imports.

However, his ideas were not accepted by the Americans at that time. In 2008 and 2009, US economist Paul Davidson presented his revised form of Keynes` plan as a possible solution to global imbalances that he said would increase growth without downside risk from other methods of rebalancing. [37] [48] [49] The balance of payments is important in international financial management for the following reasons: The balance of payments (also known as the international balance of payments and abbreviated B.O.P. .