Balance of Payments
The balance of payments records every economic transaction between a country's residents and the rest of the world. The current account and capital account always sum to zero by accounting identity -- but understanding why one is in surplus or deficit, and what that implies, is where the analysis begins.
What balance of payments tracks
Balance of Payments sits at a specific point in the macro system. This section covers what the concept captures, what it leaves out, and why it matters.
The balance of payments is an accounting framework before it is anything else. Every transaction has two sides, and the two accounts sum to zero by construction. That makes it easy to misread: there is no such thing as a BOP 'crisis' in the accounting -- crises show up in the composition of financing and in stocks of external debt, not in the headline sum.
The economic content comes from asking what kind of capital is financing the current account and whether that financing is sustainable. Short-term debt financing a consumption boom is a different problem from long-term FDI financing productive investment, even if both produce the same headline deficit.
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