Chapter twoPayments among nationsBalance of payments国际收支平衡表---the set of accounts recording all flows of value between a nation’s residents and the residents of the rest of the world during a period of time.>>show a wealth of information about a country’s international activities一、Accounting principles1. A credit item(+)---an item for which the country must be paid.Examples: exports, purchases by foreign tourists, foreign investing ingovernment bonds2. A debit item(-)---an item for which the country must pay.(import)Examples: import, purchases by firms in foreign countries, purchasesby investors of foreign shares3.Double-entry bookkeeping复式簿记---fundamental accountingprinciple.4.Double-entry bookkeeping’s key implication: if we add up all thepositive items (credits) and all the negative items (debits)in a country’sbalance of payment, the total will be zero.5.Surplus---positive balance6.Deficit---negative balance二、A country’s balance of payments◆Current account---includes all debit and credit items that are exports and imports of goods and services, income receipts and income payments, and gifts.1.Exports and imports of goods(merchandise) and servicesServices: tourism, national trade transportation, insurance, education,financial, technical, telecommunications, brand names.2.Goods and services balance、trade balance、Goods/merchandise tradebalance ---all items for exports and imports of goods and services3.Income flows---payments to holders of foreign financial assetsInclude: interest, dividends, other claims on profits, payments toforeign workers (short time stay)4.Unilateral transfers---items that keeps track of gifts that the countrymakes and gifts that it receives; private transfer(international migrant s’remittances of money and goods back to their families in home country；charitable giving)5.Current account balance◆Financial account1.Financial account balance/financial account---net value of flows offinancial assets and similar claims(excluding official internationalreserve asset flows)2.the values in financial account are for the principal amounts本金forassets traded. While any flows of earnings on foreign assets are incurrent account.3.Exporting financial assets/capital imports (+)4.Importing financial assets/capital exports(-)5.Foreign direct investment---any flow of lending to, or purchases ofownership in, a foreign enterprise that is largely owned and controlledby the entity(usually a multinational enterprise) doing this lending ofinvesting.6.Indirect foreign investments include: international flows ofsecurities(bonds and stocks), loan, bank deposits.7.International portfolio investment---investor does not own a largeshare of the enterprise being invested in, but as a part of a diversifiedportfolio. eg: bond or stock◆Official international reserves---money-like assets that are held bygovernments and that are recognized by governments as fully acceptable for payments between them.1.Gold2.Foreign exchange assets3.Claims债权a country has on IMF: reserve position储备头寸4.SDRs---special drawings rights---reserve asset created by IMF◆Statistical discrepancy---net result of errors and omissions on both thecredit and debit sides.1.For US: undermeasurement of private capital flows2.For the world: tendency to underreport merchandise imports, incomereceipts(特别是investment incomes), capital exports.>>people succeedin hiding imports, foreign investment incomes, capital flight from owngovernment officials.三、The macro meaning of the current account balance1.Current account balance:1)current account balance/CA= net foreign investment/I f2)current account surplus= net foreign investment positive>>net lender净债权国3)current account deficit= net foreign investment negative>>net borrower净债务国4)national saving(S)=I d+I f>>I f =S-I d>>CA= S-I d5)Domestic production (Y) = C + I d + G +(X – M)National expenditure (E) = C + I d + GY=E+(X-M),so that CA = (X – M) approximatelyCA = Y – EMeaning of a current account surplus:•The country has positive net foreign investment (a net lender)•The country is saving more than it is investing domestically.•The country is producing more than it is spending on goods and services. 2、四、The macro meaning of the overall balance1.overall balance---whether balance of payment has achieved an overallpattern that is sustainable over time一定时期内2.indicator:I f=FA/financial account balance+OR/net flows of official reserve assetsOfficial settlements balance/B=CA+FAB+OR=03.Economic Meaning of Overall BalanceIf B is in surplus, there is an accumulation of OR (debit in OR)—the monetary authorities buy foreign currencies.Vice versaAmerica in 2007 vs. China in 2007五、The international investment position1.International investment position---statement of the stocks of a nation’sinternational assets and foreign liabilities at a point in time (end of a year) 2.Lender or borrower: depend on whether its current account is in surplus ordeficit一段时期流量3.Creditor or debtor: depend on whether its net stock of foreign assets ispositive or negative某一时点存量4.U.S. International Investment Position。