POLI 445 Lecture Notes - Lecture 2: Customs War, Deflate, World Trade Organization
12 Nov 2015
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Balance of payments is the total you either owe (a deficit) or are due (a surplus) via interactions with other states. The balance is the result of trade in goods, services, and capital flows (as well as any transfers, like aid). Note: this refers to the national economy, not to individual firms. Payments pass through the banking system (e. g. central bank). Balance of payments adjustment: when you owe money (deficit), you have to pay in some fashion. This is generally seen as a problem: when others owe you money (surplus), you have choices, accumulate credit, collect foreign exchange (build up reserves, add to assets. These options can be used alone or in combination with each other: Pay with your own currency (if you can) 1: but, this option only works if others will accept your national currency as payment. Your currency is good enough (will it hold its value over time?)
