balance-of-payments disequilibrium

balance-of-payments disequilibrium

which, together with proceeds from the UK's position as a leading overseas investor, have been major foreign exchange earners. As can be seen in Fig. 13 (b), the UK has recently been in overall surplus on current account after previously chalking up large deficits.

In addition to current account transactions, there are also currency flows into and out of the country related to capital items. The capital and financial account is made up of a number of elements including: receipts and payments related to FOREIGN DIRECT INVESTMENT (monies spent by companies on setting up or acquiring overseas manufacturing plants, sales offices, etc.); receipts and payments related to PORTFOLIO INVESTMENT (monies spent by mainly financial institutions in purchasing overseas stocks and shares, government bonds, etc.); and receipts and payments related to interbank transfers (for example, foreign currency deposits with UK commercial banks taking advantage of higher UK interest rates compared to other financial centres). Recently the UK has been a net exporter of capital after a number of years of capital account surpluses - see Fig. 13 (b) .

The current balance and the capital and financial account, together with the ‘balancing item’ (which includes errors and omissions in recording transactions and leads and lags in currency payments and receipts), result in the balance for official financing. This figure shows whether the country has incurred an overall surplus or deficit. If the balance of payments is in surplus, the country can add to its INTERNATIONAL RESERVES and, if necessary, repay borrowings; if it is in deficit, this has to be covered by running down its international reserves or by borrowing (for example, from the INTERNATIONAL MONETARY FUND).

Maintaining BALANCE-OF-PAYMENTS EQUILIBRIUM over a run of years is usually one of the four major objectives of a government's MACROECONOMIC POLICY.A balance of payments surplus or deficit can be remedied in a number of ways, including external price adjustments, internal price and income adjustments, and trade and currency restrictions.


balance-of-payments disequilibrium

see BALANCE-OFPAYMENTS EQUILIBRIUM.
References in periodicals archive ?
With regard to the trade sector, the mechanism suggested by the monetary approach to the balance-of-payments theory--to reduce the balance-of-payments disequilibrium through a reduction in imports and an increase in exports--tends to ignore the fundamental difference between the determinants of levels of imports and exports in the LDCs and the industrialized countries (on whose structure the assumptions of the monetary approach to the balance-of-payments theory are based).