Global Material Economics. Importance of Balance of Payments

Global Material Economics
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Global Material Economics
Importance of Balance of Payments
A balance of payment is a statement of all the monetary or financial transactions between a given nation and its citizens and other nations around the world. The statement provides an account of both the inflow and outflow of goods and services of a country within a given timeframe. The total imports and exports of a nation make for some of the entries made in a balance of payment. Besides highlighting the flow of goods and services into and out of the country, the United States’ balance of payment, like many others, is also reflective of the nation’s inflow and outflow of capital. An ideal situation calls for a balance between the inflow and outflow of all the elements of trading transactions between the country and its foreign counterparts. However, a majority of the countries including the United States, often record a deficit or a surplus in their balance of payments. The United States, for instance, currently has a negative or deficit balance of payments, which means that the nation’s imports of goods, services, and capital assets is higher its exports of the same. A surplus balance of payment would, on the other hand, be indicative of higher export of the same elements compared to their imports into the country.
A balance of payments functions to provide a basis for analyzing the economic performance of the nation and proposing an effective course of action for sustainable economic growth and development. Besides determining the economic performance of a nation, balance of payments function to provide a framework for the development of a wide range of policies towards the promotion of the growth of a nation’s economy. It also forms the basis for the formation of protective measures on the domestic industries of a country from foreign competition. A balance of payment further allows the government to develop effective strategies for sustainable economic development through the adoption of appropriate policies towards promotion of domestic sectors of the economy with potential for driving the nation’s economic growth objectives.
Current Account
The current account refers to one of the primary components of a balance of payments, which deals or rather contains the record of all the monetary transactions involved in the exchange of goods and services. The current account has four ma...