Balance of payments - what is it? Balance of payments structure

Since the formation of the first states in the history of mankind, trade has gone beyond the borders of one country. At first it could be an exchange of goods, but after the advent of money, the scale of trade operations has changed significantly.

The concept

For too long, international trade between countries has not been named. For the first time, the concept of balance of payments was introduced into financial terminology in 1767 by James Den-Stewart, a British economist. In his understanding, this term meant the expenditure by citizens of money abroad and payment of debts to foreigners.

In the modern interpretation, the balance of payments is payments made from one country to another. Let us consider in more detail its structure and history of occurrence.

Conditions and the need for international balances

As history has shown, the emergence of such a financial category as the balance of payments has noticeably changed the national economy of most countries.

If at the end of the XIX and at the beginning of the XX centuries the cost of currencies was at the same level for a rather long period of time, supported by the “gold standard”, which, in essence, formed their exchange rate (which suited everyone), then in the conditions of a “floating” rate this approach became unprofitable.

Previously, the financial item “Reserve Assets” participated in the regulation of any changes in the exchange rate. In our time, it is the country's balance of payments, or rather, its state, that affects the depreciation or rise of the exchange rate. This financial category had to go through several transformations in order to come to the structure that the International Monetary Fund represents today.

Key financial approaches

Currently valid are:

• Classical is the theory proposed by David Hume. It is called "automatic balance." It was in her that the main work on the regulation of exchange rates was carried out by “Reserve Assets”.
• The next step was the neoclassical approach, called elastic. Such financial geniuses as J. Robinson, A. Lerner, L. Metzler took part in its development. According to their theory, the backbone of the country's balance of payments is its foreign trade, the balance of which is determined by the price level of exported goods in relation to imported goods and multiplied by a fixed exchange rate. With this approach, the balance of the balance is provided by a change in the exchange rate. That is, its devaluation will reduce prices in foreign currency for exported goods, while revaluation will “force” foreign buyers to purchase products of a given country at a higher cost.
• The next theory is the absorption approach, in which the balance of payments (namely its trading part) is “tied” to the main elements of the country's GDP. The founder of this approach was S. Alexander, who took as a basis the ideas that were put forward by J. Mead and J. Tinbergen. In this case, the balance of payments is regulated by stimulating exports while curbing imports. This should encourage domestic producers to produce competitive products and provide the same high level of services, and not depend solely on currency devaluation, as in the previous approach.
• Monetarist balance theory is tied to monetary factors, namely, how the balance affects the circulation of money in the country. Here the approach is the following: to avoid a balance of payments deficit, it is necessary to strictly control the amount of money that goes in the country. If there are too many of them, then they should be disposed of by acquiring foreign goods or services.

All of these approaches have been applied at different times and remain relevant today. Depending on which bottom is currently used in the country, the types of operations it conducts depend on it.

Structure

As a rule, many countries use trade operations as regulation of the balance of payments, trying to achieve a surplus. In fact, there may be several such operations.

The International Monetary Fund has drawn up a balance of payments scheme, which includes 112 articles, divided into 7 blocks. This scheme is extremely difficult for people ignorant in the financial sphere, so it was simplified to three parts, reducing it to the following sections:

• current accounts;
• accounts related to operations with capital (financial instruments);
• balance of payments transactions.

Let us consider in more detail what they are.

Basic Payment Accounts

Current accounts of the balance of payments include:

• export of goods;
• import of products.

And together they make up the trade balance. It is also necessary to mention:

• services (included in the balance sheet of trade and services);
• investment income;
• transfers.

As a rule, the current financial accounts of the balance of payments reflect all cash receipts that come from the sale of goods and services to non-residents, as well as net income from investment projects. All export earnings are recorded in the plus column, since in these transactions the treasury is replenished with foreign currency. When import operations are carried out, they are taken into account as a minus in the debit graph, since this is an outflow of currency from the country.

Worldwide, the basis of the balance of payments of countries is foreign trade. It occupies up to 80% of the volume in international economic relations. If the balance of the balance is positive, then this is a sign that competitive products are produced in this country.

Balance of payments accounts

The accounts for operations with capital and instruments include:

• directly capital account;
• financial accounts, which include the following instruments: direct investment, portfolio and other investments.

Accounts with operations with capital include all types of sales and purchases and transactions on them, capital transfers, cancellation of debts, investment grants, transfer of property rights, cancellation of debts to the government, transfer of rights to both tangible (for example, the bowels of the earth) and intangible ( trademarks, licenses, etc.) assets.

When there is an influx of currency into these treasury on these accounts, we can talk about a surplus. And vice versa.

Financial accounts are associated with transactions on the transfer of ownership of financial assets of a given country. Loans provided in this case may take the form of both direct and portfolio investments.

What is the balance of payment transactions

These concepts are the basis of any financial transactions, as they determine their quality. Balance of payments is a group of accounts, which ideally should be with a positive indicator after those financial transactions that were carried out in the country or abroad (export-import).

These operations, in turn, are divided into primary (that is, they are independent and have strong growth trends) and secondary (short-term, are under the influence of, for example, the Central Bank or the Government).

All countries in the world strive to achieve an active, in the worst case, zero balance of payments. If at some economic stage of the country's development its balance has been in the red for a long time, then the reserves of gold and currency in the Central Bank are reduced until the devaluation of its domestic currency occurs.

Payment Methods

Any payments made between countries are indicated in two columns: credit and debit, and the difference between their indicators is either a positive or a negative balance.

For example, when a country exports goods, labor, services, information or knowledge and foreign currency flows into its treasury, then all proceeds from transactions will be entered in the column with the “+” sign of the loan balance of payments.

The same operations, but only on imports, entailing an outflow of currency from the country, are entered in the “debit” column with a “-” sign.

If a country buys real capital (currency, securities) abroad, then such financial transactions are also recorded in the “debit”, so there is an outflow of currency. In the event that, on the contrary, it sells domestic capital or writes off debt to non-residents (individual companies or the whole country), then this will be recorded on a “loan”. For example,

In this case, the balance of payments is a document in which the country's foreign economic relations and operations are recorded, and since it has an international format, all cash flows are recorded in dollars.

Deficit and surplus in the balance sheet

These two concepts are associated with actions in which either financing a negative balance or applying its positive counterpart is carried out.

The deficit in the balance sheet must overlap with something, and it is important to determine whether it will be a foreign business account or capital in the form of loans.

The first, of course, is preferable, since it provides an inflow of currency into the country, while loans will entail its outflow, and even with interest.

As a last resort, you can use the country's foreign exchange reserves to cover the deficit in the balance sheet, and, well, a completely desperate step is the devaluation of the domestic currency.

If there is a surplus arising in the course of current operations, the country spends the capital received on negative balances that appear. Also, part of the money goes to the article “Pure mistakes and omissions”.

MFI Payout Scheme

The structure of the balance of payments adopted in 1993 by the IMF includes:

• Settlement balance. All financial obligations of one country in relation to another / other states and their fulfillment within the time specified in the agreement are implied.
• The balance of international debt. This includes actual payments to other countries and the inflow of money from them.

In reports on these types of balances, the amount of credit money should coincide with the debit.

Russian balance

If we consider the balance of payments of Russia, the main movement of foreign currency is displayed in the following ratios of imports and exports:

• overseas transportation;
• tourism industry;
• purchase or sale of licenses (patents, brands);
• trade;
• international insurance;
• direct or portfolio investment and much more.

For the first time according to the structure proposed by the IMF of Russia, the balance of payments was drawn up in 1992, and since then it has been drawn up according to the same schemes.

Throughout all time, the main source of foreign currency inflow into the country was the export of oil and gas, wood, weapons, equipment, coal and other products.

The main foreign trade partners of Russia are China, the USA, Germany, Kazakhstan, Belarus and other countries of the near and far abroad.

Output

So, the balance of payments is a statistical report of all international operations that are conducted between countries. It indicates transactions, dates of payments, debit, credit and balances on them.

All three sections of the balance of payments reflect the financial position of the country by:

• current operations;
• capital and financial instruments;
• skipping and bugs.

They are the structure of the balance of payments. All countries in the world adhere to these parameters.