Concepts Used In Balance Of Payments

Before going into in detail discussion of balance of payments reader has to be familiar with the following concepts:

• Economic Transactions: Economic transactions for the most part between residents and non-residents consist of those involving goods, services, and income; those involving financial claims on, and liabilities to the rest of the world; and those, classified as transfers. A transaction means an economic flow that reflects the exchange, extinction, creation, transfer or transformation of economic value and involves changes in ownership of goods and / or financial assets, the provision of services, or the provision of labor and capital.
• Double Entry System: Double entry system is the basic accounting concept applied in constructing a balance of payments statement. That is every transaction is recorded based on accounting principle. One of these entries is a credit and the other entry is debit. In principle, the sum of all credit entries is identical to the sum of all debit entries, and the net balance of all entries in the statement is zero. Exports decreases in foreign financial assets are recorded as credits, while imports increases in foreign financial assets are recorded as debits. On the other hand, decreases in liabilities are recorded as debits, while increases in liabilities are recorded as credits.
• Concept of Residence: Concept of residence is very important attribute of an institutional unit in the balance of payments because the identification of transactions between residents and non-residents underpins the system. The concept of residence is based on sectoral transactor’s center of economic interest.
• Time of Recording: The IMF Balance of Payments Statistics contains over 100,000 quarterly and annual time series data. When the data are available, the annual entries generally begin in 1967 and quarterly entries begin in 1970. The period for which data are available varies from country to country, but most countries' data extend from the mid-1970s to the present.