balance of payments (2) s
TRANSCRIPT
Balance of PaymentsSummary by Leon Taylor
Two Rules of Thumb in International Economic Accounting
Transactions Viewed as credit Viewed as debit
Examples Payment to KZT is
credit Payment by KZT
is debit
Transactions are Credits and debits Double character
Transactions enter accounts twice
Example KZT sells oil to
China for 60 USD [9 000 Tenge]
Recording the Oil Transaction Sale of oil enters the current account as
credit [KZT received payment of 60 USD] Receipt of the 60 USD enters the capital
account as a debit KZ must spend the 60 on a dollar
denominated asset If oil extractor converts the 60 to 9 000 Tenge
to pay wages, the 60 ends up in a KZ bank account
Bank then uses the 60 to purchase a dollar denominated asset
Current Account Transactions with Goods and Services Compensation of employees balance Investment Income Balance Current Transfers
Transactions in Goods and Services
Export and imports Goods Services
Counter-trade as well as payment for good or service
Countertrade is a form of barter
Compensation of employees balance
Payments made to migrant workers and non-resident workers KZ worker exports a service to another
country Wage is credit in current account
Migrant wages remitted to Tajikistan Wages are debits in current account
Investment Income Balance Net payments of interest or dividends
KZ investor buys 1 share of GM Purchase is a debit Dividend payment is credit
Other view Transaction may be viewed as credit
since person has claim on financial asset of GM
Transfer Payments International gifts or transfer payments
Capital and Financial Account
Capital account Credit and debit entries for non-produced,
nonfinancial assets and capital between residents and non-residents Land Leases, licenses
Financial Account Net acquisition and disposal of financial
assets and liabilities
Examples on Cap/Fin Account Allianz borrows 1 million USD from
Sberbank in Russia Credit – payment to KZ Debit – asset sold by KZ
Lease of drug patent KZT and US drug firm Payment is KZ debit US drug has Tenge, convert or acquire
smthg. in KZ, entered as credit
Double entry accounting Credit
Export of good or service Income receivable Reduction in assets Increase in liabilities
Debit Import of goods and services Income payable Increase in assets Reduction in liabilities
Example KZ sells oil for 60 USD
Credit – export of oil Debit – receipt of 60 USD
Increase in financial asset KazKommerzbank sells share to UK
investor for 100 USD Credit – reduction of financial asset Debit - receipt of cash as it increase
financial assets
Example BTA borrows 1 million from US bank
Credit – loan as it increases liability Debit – cash received as it increases
financial assets
Additional Reading Krugman, Paul R., and Maurice Obstfeld.2009. International
economics: Theory and policy. Eighth edition. Boston: Pearson. Chapter 12: National income accounting and the balance of payments. Presents the two rules-of-thumb discussed at the beginning of this memo.
International Monetary Fund.2007. The balance of payments and international investment position manual. Sixth edition. Available for free at http://www.imf.org/external/pubs/ft/bop/2007/bopman6.htm. Discusses the nitty-gritty details. The “international investment position” measures the stock of international assets of a nation; the “balance of payments”, changes in those assets.