Balance of payments: the basics

In short: The balance of payments records all economic transactions between a country and the rest of the world over a given period. It shows, for example, how much a country exports and imports and how capital flows across its borders.

In more detail: The balance of payments consists of several sub-accounts. Because every transaction is recorded twice, it always balances overall in accounting terms, even if individual sub-accounts show surpluses or deficits.

In detail

• Current account: This covers trade in goods and services as well as cross-border income and current transfers.
• Trade balance: As part of the current account, it compares exports and imports of goods; a surplus means that more goods were exported than imported.
• Primary and secondary income: These include interest, dividends and wages across borders, as well as remittances, contributions to international organisations or development aid.
• Capital account: This records comparatively small items such as debt forgiveness or trade in certain intangible rights.
• Financial account: Financial transactions such as direct investment, purchases of securities, loans and changes in currency reserves are recorded here.
• Mirror image: A current account surplus usually goes hand in hand with capital exports, meaning the country builds up claims on the rest of the world.
• Errors and omissions: Because not all transactions can be recorded precisely, there is a residual item that balances out measurement and recording errors.
• Germany: Germany has run large current account surpluses for many years, which experts discuss partly as a sign of competitiveness and partly as an imbalance.
• Responsibility: In Germany, the Deutsche Bundesbank compiles the balance of payments statistics according to internationally agreed standards (wechselkurse-und-devisenmarkt, freihandel-und-zoelle).