1、Robert CarbaughINTERNATIONAL ECONOMICS 15E 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use

2、.The Balance-of-PaymentsChapter 10 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Chapter

3、 Outline Double Entry Accounting Balance-of-Payments Structure U.S. Balance-of-Payments What Does a Current Account Deficit (Surplus) Mean? Balance of International Indebtedness The Dollar as the Worlds ReserveCurrency 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplic

4、ated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.The Balance of Payments The Balance-of-Payments is a record of the economic transactions between the residents of one count

5、ry and the rest of the world Records are kept annually and quarterly An international transaction is an exchange of goods, services, or assets between residents of one country and those of another Residents include businesses, individuals and government agencies that make the country their legal dom

6、icile 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Double Entry Accounting (1 of 2) Arr

7、anging international transactions into a balance-of-payments account requires that each transaction be entered as a credit or a debit Double Entry Accounting A credit transaction results in a receipt of a payment from foreigners; recorded with a + A debit transaction is one that leads to a payment t

8、o foreigners; recorded with a - 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Double Ent

9、ry Accounting(2 of 2) Examples of credits Income received from investments abroad Gifts received from foreign residents Aid received from foreign governments Investments in the U.S. by overseas residents Examples of Debits Merchandise imports Transportation and travel expenditures Income paid on the

10、 investments of foreigners Gifts to foreign residents Overseas investment by U.S. residents 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise

11、on a password-protected website for classroom use.Balance-of-Payments Structure(1 of 5) Current Account The monetary value of international flows associated with transactions in goods, services, income flows, and unilateral transfers Merchandise trade balance includes all goods the U.S. exports or i

12、mports; combining exports & imports gives the merchandise trade balance When balance is negative, trade deficit When balance is positive, trade surplus 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license

13、 distributed with a certain product or service or otherwise on a password-protected website for classroom use.Balance-of-Payments Structure(2 of 5) Capital and Financial AccountTransactions include all international purchases or sales of assets, including private sector and central bank transactions

14、Broadly defined to include titles to real estate, corporate stocks & bonds, government securities and ordinary commercial bank depositsMajor types of capital transfers are debt forgiveness and migrants goods and financial assets accompanying them as they leave or enter the countryIncludes the sale a

15、nd purchase of rights to natural resources, patents, copyrights, trademarks, and more 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a p

16、assword-protected website for classroom use.Figure 10.1-International Payments Process 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a

17、password-protected website for classroom use.Balance-of-Payments Structure(3 of 5) Official Settlements TransactionsThe movement of financial assets among official holders such as theU.S. Federal Reserve and Bank of England Official reserve assets (U.S. government assets abroad) Liabilities to forei

18、gn official agencies (foreign official assets in the U.S.)Official holds of reserves used for two purposes Provide a country sufficient international liquidity to finance short run trade deficits, currency crises, etc. Central banks sometimes buy or sell official reserve assets in theprivate sector

19、to stabilize their currencies exchange rates 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom u

20、se.Balance-of-Payments Structure(4 of 5) Official reserve assetsStock of gold reserves held by U.S. GovernmentConvertible currencies such as Japanese yen, readily acceptable aspayment for international transactionsReserve position that U.S. maintains in International Monetary FundSpecial drawing rig

21、hts, a new reserve asset Can be transferred among nations in settlement of balance-of- payments deficits or stabilization of exchange rates Defined as the basket of currencies which includes U.S. dollar, Japanese yen, UK pound, and the euro 2015 Cengage Learning. All Rights Reserved. May not be copi

22、ed, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Table 10.1-U.S. Reserve Assets, 2013 2015 Cengage Learning. All Rights Reserved. May not be copied, s

23、canned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Table 10.2- Selected U.S. Liabilities to Foreign Official Institutions, 2013 2015 Cengage Learning. All Ri

24、ghts Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.Balance-of-Payments Structure(5 of 5) Statistical Discrepancy: Errors &

25、 OmissionsData collection process for balance-of-payments figures imperfectGovernment statisticians base figures partly on information collected & partly on estimatesWhen statisticians sum credits & debits, rarely matchSince debits must equal credits, insert a residual to make them equalThis correct

26、ing entry is statistical discrepancy, or errors and omissions 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected websit

27、e for classroom use.U.S. Balance-of-Payments (1 of 2) The merchandise trade balance, commonly referred to as the trade balance In 2011, U.S. had a merchandise trade deficit of -$738.4 billion, resulting from difference betweenU.S. merchandise exports and imports Trade deficits not popular with U.S.

28、residents & policymakers Negatively affect terms-of-trade, employment levels, stability of international money markets 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain produ

29、ct or service or otherwise on a password-protected website for classroom use.Table 10.3- U.S. Balance-of-Payments, 2011(billions of dollars) 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distribute

30、d with a certain product or service or otherwise on a password-protected website for classroom use.Table 10.4- U.S.Balance-of-Payments, 1980-2012 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distr

31、ibuted with a certain product or service or otherwise on a password-protected website for classroom use.U.S. Balance-of-Payments (2 of 2) Taken as a whole, U.S. international transactions always balanceAny force leading to an increase or decrease in one balance-of-payments account leads to exactly o

32、ffsetting changes in balances of other accountsIn Table 10.3, U.S. had deficit of -$465.9 billionOffsetting this deficit was a combined surplus of $465.9 billion in remaining capital & financial accounts 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole

33、or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.What Does a Current Account Deficit (Surplus) Mean? (1 of 11) Net Foreign Investment & the Current Account BalanceCurrent account balance

34、synonymous with net foreign investment in national income acctg Current account surplus means an excess of exports over imports; nation becomes a lender to rest of world Current account deficit means an excess of imports over exports; nation becomes a borrower of funds from rest of world 2015 Cengag

35、e Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.What Does a Current Account Deficit (Surplus) Mean? (

36、2 of 11) Impact of Capital Flows on Current AccountCapital and financial flows can initiate changes in the current account 1980s, a massive financial inflow caused a current account deficit for the U.S., a result of an increase in the U.S. interest rate relative to interest rates abroad Higher inter

37、est rate because of U.S. growing budget deficit anddecline in private savings rate It may be that current account deficit is driven by capital flows: capital inflows keep dollar stronger than it would be, boosting imports and suppressing exports, thus leading to a current account deficit 2015 Cengag

38、e Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.What Does a Current Account Deficit (Surplus) Mean? (

39、3 of 11) Is a Current Account Deficit a Problem?Current account deficit arises because domestic economy spends more than it produces Excess of demand met by net inflow of foreign goods and services leading to deficit Problem? Not necessarily Foreign capital inflows augment domestic sources, and keep

40、 domestic interest rates lower than they would be Benefit of deficit is ability to spend more than produce Cost is debt service that must be paid on borrowing 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a

41、license distributed with a certain product or service or otherwise on a password-protected website for classroom use.What Does a Current Account Deficit (Surplus) Mean? (4 of 11) Is a Current Account Deficit a Problem? (cont.)Is it good or bad for country to incur debt? Depends on whether the defici

42、t used to finance moreconsumption or more investment If used for investment, burden slight If used for consumption, no boost to future productivity To meet debt service expense, future consumption must be reduced 1980s, U.S. domestic saving decreased; U.S. used foreign borrowing to increase current

43、consumption 1990s, deficits driven by increases in domestic investment, made possible by foreign lending to U.S. 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or

44、service or otherwise on a password-protected website for classroom use.Table 10.5- Global Production & Manufacturing Cost of the iPhone 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed wit

45、h a certain product or service or otherwise on a password-protected website for classroom use.What Does a Current Account Deficit (Surplus) Mean? (5 of 11) Business Cycles, Economic Growth, and the Current Account Rapid growth of production & employment associated with growing trade & current accoun

46、t deficits Slow output & employment growth associated with growing surpluses During recession, saving & investment tend to fall; current account balance tends to rise; trade balance improves Opposite occurs during periods of boom 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned

47、, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.What Does a Current Account Deficit (Surplus) Mean? (6 of 11) How U.S. Has Borrowed at Very Low CostPast 4 decad

48、es, U.S. current account has moved from a small surplus to a large deficit, financed either by borrowing from or selling assets to foreignersU.S. has become a large net debtor; must make larger payments of interest & principal to foreign lendersPast 2 decades, paradox: U.S. residents earned more fro

49、m foreign investments than foreigners earn from U.S. investments U.S. has been able to be a large debtor nation without bearing negative debt service cost; current account deficits might be less burdensome than portrayed 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or dupl

50、icated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.What Does a Current Account Deficit (Surplus) Mean? (7 of 11) How U.S. Has Borrowed at Very Low CostWhat accounts for par

51、adox? Asymmetric investment returns; rate of return advantage has generally been 1-2% points; U.S. firms take greater risks investing in foreign firms because of political and economic instability; higher risk, reward U.S. considered a safe haven; foreign investors more likely to buyU.S. assets that

52、 offer low risk, returnFuture U.S. borrowing may not be as favorable If interest rates rise, U.S. will pay higher rates Could swing U.S. investment income balance from surplus todeficit 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except

53、 for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.What Does a Current Account Deficit (Surplus) Mean? (8 of 11) Do Current Account Deficits Cost Americans Jobs?Per Federal Reserve Bank of New York & Cato In

54、stitute, employment statistics do not confirm Trade deficit may hurt employment at some firms & industries as workers displaced by imports, but Economy wide, deficit matched by equal inflow of foreign funds sustaining investment spending that would otherwise not occur Current Account deficit produce

55、s jobs for the economy from higher employment in investment oriented industries and from indirect effect of higher investment 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certai

56、n product or service or otherwise on a password-protected website for classroom use.What Does a Current Account Deficit (Surplus) Mean? (9 of 11) Can the U.S. Continue to Run Current Account Deficits Indefinitely?Foreigners have remained willing buy U.S. assets such as Treasury securitiesLarge incre

57、ase in U.S. current account deficit not possible without inflows of foreign capital from nations with high savings rates such as Japan & ChinaChina is a major supplier of capital to the U.S. Chinas exchange rate policy of keeping value of its yuan low to export goods to U.S. & create jobs for its workers 2015 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated,