1 / 25

THE BALANCE OF PAYMENTS

THE BALANCE OF PAYMENTS. ECONOMICS JUNE 2001 MR MC KEE. BALANCE OF PAYMENTS. The BOP is the part of the countries national accounts which records all the transactions between UK residents and residents overseas. The balance of payments was traditionally made up of 2 main parts;

trista
Télécharger la présentation

THE BALANCE OF PAYMENTS

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. THE BALANCE OF PAYMENTS ECONOMICS JUNE 2001 MR MC KEE

  2. BALANCE OF PAYMENTS • The BOP is the part of the countries national accounts which records all the transactions between UK residents and residents overseas. • The balance of payments was traditionally made up of 2 main parts; • The current account • The capital account.

  3. Balance of payments • However since 1998 the presentation of the balance of payments account has been changed to follow the same structure as other European countries • It is now made up of 4 accounts: • The current account • The capital account • The financial account • The international investment position

  4. THE CURENT ACCOUNT = Trade balance in goods + Trade balance in services + Net investment income + Transfers = Current Account balance

  5. TRADE IN GOODS • Includes all goods which can be seen and touched: • Eg consumer durables • Capital goods • Commodities (oil,fuel gold) • Raw materials • Food and drink

  6. Britain’s Net Trade in Goods

  7. Trends in trade in goods

  8. Why does the UK import more than it exports? 1.The UK has very few world class companies particularly in high-tech sector. 2. Competition from low wage countries in far east. 3. UK does not have supply side capacity to meet demand 4. Strong ER which leads to less exports and more imports.

  9. Exchange Rate and the Trade Deficit The much higher average value of sterling has contributed to rising import penetration and a growing trade deficit – although the cyclical strength of the economy (and consumer demand in particular) has been another key factor

  10. THE TRADE IN SERVICES Includes the following: • Tourism • Transport: shipping, civil aviation • Insurance banking and accountancy • Music and entertainment

  11. Britain’s Net Trade in Services

  12. Trends in Services Trade

  13. Why a surplus in services? • The UK has quite a large surplus in services. • We can see from the table that this surplus is accounted for by financial services and other businesses • This reflects the UK’s standing in financial services. (London is still one of the main financial centres)

  14. Net investment income • Refers to return on UK assets (interest, profit and dividends) in other countries, minus the payments to foreign holders of UK based assets. • It is the same as NPIA in national income accounting • Almost always a large credit item for the UK

  15. Net Investment Income Data Surplus in income from UK assets held overseas – provides a positive contribution to our overall balance of payments

  16. Transfers • Refers to a straightforward transfer of wealth from one country to another, or to some international body eg. EU, NATO, UN. • UK is generally a net contributor to these bodies. • Therefore it is an outflow of funds from the UK (minus figure).

  17. Overseas Transfer Account

  18. THE CURENT ACCOUNT = Trade balance in goods + Trade balance in services + Net investment income + Transfers = Current Account balance

  19. Current Account Balance

  20. Current account balance • We can see that UK current balance is almost always in deficit • This means that the UK experiences a net outflow of funds from the Circular flow.

  21. THE CAPITAL AND FINANCIAL ACCOUNTS • Refers to transactions in external assets and liabilities. • External assets are items of value situated abroad but owned by UK residents. • E.G: Homes, pubs, bank accounts, bonds etc purchased in other countries. • The purchase of these represents an outflow of funds from the UK. (minus sign) • However this type of investment can be good for the UK, since it may generate income which would appear in the current account under investment income.

  22. Official reserves. • An important element of capital and financial Accounts is changes in official reserves. • If current account is in deficit then a country must use up its stock of foreign currency reserves to pay for it. • If currency reserves are run down they are recorded as a positive.

  23. Official reserves. contd • Similarly a surplus on the current AC will lead to funds being added to the reserves. • This is recorded as a minus • Eg. if deficit = £27 mn (-) • Currency reserves run down by £27 mn • But this is recorded as a (+). • Therefore B of P = 0

  24. Balancing the B of P • This is the reason why the B of P should always balance. ( =0 ). • However in reality, errors are often made when calculating the B of P, so it rarely balances. • Therefore a balancing item is added to make the accounts balance.

  25. Balance of Payments Accounts Balance of Payments = Trade balance in goods + Trade balance in services + Net investment income + Transfers = Current Account balance + Capital and financial Account Flows + Balancing item = Basic Balance of Payments (=0)

More Related