INTERNATIONAL MONETARY ECONOMICS
Lecture 1 - The Concept of the Balance of Payments
1. Introduction
There are enormous differences in the extent to which individual nations are dependent upon transactions with the outside world. The UK has always been an ‘open’ economy, both importing and exporting on a
代写留学生论文massive scale. Superficially this may simply be seen to reflect the difficulties which any nation the size of the UK must inevitably face in trying to be self-sufficient across the whole range of goods and services. However, it is important to note both that the UK’s degree of openness has been increasing steadily over the past decades (as has also been true elsewhere in the EU) and that external transactions increasingly involve one-way flows of capital which are unrelated to the immediate consumption requirements of UK residents. In recent years the value of both imports and exports has grown to exceed 30 per cent of the UK’s Gross Domestic Product (GDP), and it is obvious that these trade flows impact significantly upon the UK’s industrial structure, the level of employment, the standard of living of UK nationals and so on. In other words, the internal and external sectors are inextricably linked, and it is impossible to control internal macroeconomic objectives, such as the level of employment and the rate of inflation, without taking into account their links with the external sector. Indeed, as we shall see, much of the post-war
history of UK macroeconomic policy can be viewed in terms of a struggle to find acceptable trade-offs between the internal and external objectives of policy.
2. The system of balance of payments accounts
The balance of payments may be defined as a systematic record, over a given period of time, of all transactions between residents and non-residents of the UK. The term ‘resident’ covers both individuals permanently in the UK and corporate bodies located therein, but not their overseas branches and subsidiaries. It also includes government agencies and military forces located abroad. ‘Permanent’ residence is determined by the intention to remain in the UK for at least one full year. The object of the accounting system is to record these transactions in a way which is suitable for analysing the economic relations between the UK economy and the rest of the world. The transactions may represent (a) resources provided by, or to, UK residents (imports and exports of goods and services, together with the use of investments), (b) changes in the UK’s foreign assets or liabilities, (c) or transfer payments.
In principle, transactions are recorded when the ownership of goods or assets changes and when services are rendered. In practice, however, trade flows are recorded on a shipments basis, and the payments which match these shipments are not only almost invariably delayed, but the length of this delay is quite erratic from one period to another. In the longer term all the shipments and monetary flows can be matched up, but the short-term picture is almost inevitably quite heavily distorted. This is important because, first, both foreign exchange markets - and indeed sometimes the government - respond in a volatile way to monthly or quarterly balance of payments
statistics. Secondly, because the annual accounts are constantly being adjusted retrospectively to a degree that can turn surpluses
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into deficits, or vice versa. In other words, the short-term picture can conflict with the long
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