Balance of payments

The balance of payments is a statement that aggregates the transactions between a country and the rest of the world over a period of time. This statement is comprised of the following accounts:

  • The current account. Summarizes trade in goods and services, plus transfer payments and investment income.

  • The capital account. Summarizes purchases and sales of investments, usually involving financial instruments.

The economic policies adopted by a government can impact the balance of payments, so economists advise government leaders on how their proposed actions can trigger a change. For example, a policy designed to attract foreign investment will increase transfers into the country, which alters its balance of payments.