What is a ‘Balance Of Payments (BOP)’
A statement that summarizes an economy’s transactions with the rest of the world for a specified time period. The balance of payments, also known as balance of international payments, encompasses all transactions between a country’s residents and its nonresidents involving goods, services and income; financial claims on and liabilities to the rest of the world; and transfers such as gifts. The balance of payments classifies these transactions in two accounts – the current account and the capital account. The current account includes transactions in goods, services, investment income and current transfers, while the capital account mainly includes transactions in financial instruments. An economy’s balance of payments transactions and international investment position (IIP) together constitute its set of international accounts.
Explaining ‘Balance Of Payments (BOP)’
Despite its name, the “balance of payments” data is not concerned with actual payments made and received by an economy, but rather with transactions. Since many international transactions included in the balance of payments do not involve the payment of money, this figure may differ significantly from net payments made to foreign entities over a period of time.
Further Reading
- Inflation stabilization and BOP crises in developing countries – www.sciencedirect.com [PDF]
- Balance of Payments or Monetary Sovereignty? In Search of the EMU's Original Sin: Comments on Marc Lavoie's “The Eurozone: Similarities to and Differences from … – www.tandfonline.com [PDF]
- The financial crisis in the eurozone: a balance-of-payments crisis with a single currency? – www.elgaronline.com [PDF]
- The balance of payments-constrained growth rate and the natural rate of growth: new empirical evidence – academic.oup.com [PDF]
