International Economics 国际经济学 Lectured by Yuanfen Tu School of International Trade and Economics Email:jxnctyf@126.com

International Monetary Relations The Balance of Payments (chapter 1) Foreign Exchange (Chapter 2） Exchange-Rate Determination (chapter 3) Mechanisms of international Adjustment（chapter 4） Exchange -Rate Adjustments and the Balance of Payments（Chapter 5） Exchange-Rate Systems and Currency Crises（Chapter 6） Macroeconomic Policy in an Open Economy （Chapter 7） International Banking: Reserves, Debt and Risk（Chapter 8）

International Monetary Relations Reference Book Dominicks Salvatore 《International Economics》 Krugman.P.R, Obstfeld.M 《International Economics：Theory and Policy》

International Economics By Robert J. Carbaugh 13th Edition Chapter 1: The Balance of Payments

The Balance of Payments Main Contents What is the balance of payments? What is its structure, the nature and significance? What does a current account deficit (surplus) mean? Can the United States continue to run current account deficits year after year? What is balance of international indebtedness? What is the difference between the balance of payments and balance of international indebtedness.

Double-Entry Accounting Balance of payments Record of the economic transactions Between the residents of one country and the rest of the world Over the course of one-year period Double-entry accounting system International transaction Exchange of goods, services, or assets Between residents of one country and those of another

Double-Entry Accounting

Double-Entry Accounting Residents Businesses, individuals, and government agencies That make the country in question their legal domicile Credit transaction (+) Receipt of a payment from foreigners Debit transaction (-) Payment to foreigners

Double-Entry Accounting U.S. credit transaction (+) Merchandise exports Transportation and travel receipts Income received from investments abroad Gifts received from foreign residents Aid received from foreign governments Investments in the United States by overseas residents

Double-Entry Accounting U.S. debit transaction (-) Merchandise imports Transportation and travel expenditures Income paid on the investments of foreigners Gifts to foreign residents Aid given by the U.S. government Overseas investment by U.S. residents

Double-Entry Accounting Every international transaction involves an exchange of assets and so has both a credit and a debit side. credits(+) debits(-) Merchandise exports $25million financial movement $25million

Double-Entry Accounting Total balance-of-payments account Must always be in balance Surplus Balance on a sub-account (sub-accounts) is positive Deficit Balance on a sub-account (sub-accounts) is negative

International payments process In theory Importers in a country pay the exporters in that same country in the national currency In reality Importers and exporters in a given country do not deal directly with one another To facilitate payments, banks carry out these transactions 14

International payments process FIGURE 10.1 International payments process

Balance-of-Payments Structure Current account of the balance of payments Monetary value of international flows: Transactions in goods, services, income flows, and unilateral transfers Merchandise trade All of the goods the United States exports or imports Agricultural products, machinery, autos, petroleum, electronics, textiles

Balance-of-Payments Structure Merchandise trade balance Credit (+): the dollar value of merchandise exports Debit (-): the dollar value of merchandise imports If negative: merchandise trade deficit If positive: merchandise trade surplus

Balance-of-Payments Structure Services All the services the U.S. exports or imports Goods and services balance Services and merchandise trade account If positive: Surplus of goods and services transactions If negative: Deficit of goods and services transactions

Current account Structure of the Balance of Payments Goods and services balance measures the value of the net transfer of resources . It also furnishes information about the status of a nation’s gross domestic product (GDP). Why?

Current account GDP=C+I+G+(X-M) Structure of the Balance of Payments GDP=C+I+G+(X-M) X-M means net exports of goods and services, which represent the value of goods and services that are produced domestically but not included in domestic consumption. So a positive balance on the account shows an excess of exports over imports, and the difference must added to GDP. The balance on the goods and services account contributes to the level of a nation’s national product.

Balance-of-Payments Structure Goods and services balance Net export of goods and services Positive: Excess exports over imports Add to GDP Negative: Excess imports over exports Subtracted from GDP

Balance-of-Payments Structure Income receipts and payments Net earnings (dividends and interest) on U.S. investments abroad Earnings on U.S. investments abroad Minus payments on foreign assets in the U.S. Compensation to employees

Balance-of-Payments Structure Unilateral transfers Transfers of goods and services (gifts in kind) or financial assets (money gifts) Between the U.S. and the rest of the world Private transfer payments Governmental transfers Current account balance Balance on goods and services Investment income

Balance-of-Payments Structure

Balance-of-Payments Structure Capital and financial account Capital and financial transactions in the balance of payments All international purchases or sales of assets Private-sector and official transactions

Capital and Financial Account Structure of the Balance of Payments Capital and Financial Account Capital transactions Capital transfers Acquisition and disposal of certain non-financial assets: rights to natural resources, patents, copyrights, trademarks and so on. Private-sector financial transactions Direct Investment Securities Bank Claims and Liabilities

Capital and financial account Structure of the Balance of Payments A financial inflow may include: U.S. liabilities to foreigner rise U.S. claims on foreigner decrease Foreign-held assets in the United States rise U.S. assets overseas decrease

Capital and financial account Structure of the Balance of Payments Any transaction that leads to the home country’s receiving payments from foreigners can be regarded as a credit item. A capital (financial) inflow can be likened to the export of goods and services A capital (financial) outflow is similar in effect to the import of goods and services.

Balance-of-Payments Structure Official settlements transactions Movement of financial assets among official holders Official reserve assets Afford a country sufficient international liquidity to finance short-term trade deficits and weather periodic currency crises Stabilize currencies exchange rate Liabilities to foreign official agencies

U.S. reserve assets, 2008* TABLE 1.1

Selected U.S. liabilities to foreign official institutions, 2008* TABLE 1.2 Selected U.S. liabilities to foreign official institutions, 2008* 31

Balance-of-Payments Structure Statistical discrepancy Errors and omissions Information – some is collected, some is estimated

Balance-of-Payments Structure

U.S. balance of payments, 2008 (billions of dollars)* TABLE 1.3 U.S. balance of payments, 2008 (billions of dollars)*

U.S. balance of payments, 1980–2008 (billions of dollars) TABLE 1.4 U.S. balance of payments, 1980–2008 (billions of dollars)

U.S. Balance of Payments 2008, U.S. - merchandise trade deficit Exports < Imports Not popular - adverse consequences on Terms of trade Employment levels Stability of the international money markets

U.S. Balance of Payments 2008, U.S. – goods and services balance Surplus on service transactions Merchandise trade deficit Overall: deficit 2008, U.S. – current account deficit Excess of imports over exports Goods, services, income flows, and unilateral transfers

The paradox of capital flows from developing to industrial countries Sources of the net capital flow out of the developing economies China, Japan, Russia OPEC Divergent patterns of growth and investment Structural differences Between developing and industrial economies

The paradox of capital flows from developing to industrial countries Current account deficits in the industrial countries Increases in both public and private consumption Declines in national savings rates

What Does a Current Account Deficit (Surplus) Mean? Balance of payments Double-entry accounting system Total debits = Total credits If the current account registers a deficit The capital and financial account must register a surplus If the current account registers a surplus The capital and financial account must register a deficit

Net Foreign Investment and the Current Account Balance Net foreign investment in national income accounting Current account surplus Excess of exports over imports Goods, services, investment income, unilateral transfers Net receipt of financial claims Improving net foreign investment position Capital outflows Net supplier of funds (lender)

Net Foreign Investment and the Current Account Balance Current account deficit Excess of imports over exports Goods, services, investment income, unilateral transfers Increase in net foreign claims upon the home nation Foreign capital inflows Net demander of funds from abroad Worsening of the home nation’s net foreign investment position

Net Foreign Investment and the Current Account Balance Net borrowing of an economy Net borrowing by government Budget deficit: excess of outlays (G) over taxes (T) Private-sector net borrowing Excess of private investment (I) over private saving (S)

Impact of Capital Flows on the Current Account Are financing the current account deficit Current account deficit Driven by capital flows Capital inflows keep the dollar stronger than it otherwise would be Boost imports Suppress exports

Is a Current Account Deficit a Problem? Not efficiently reversed by trade policies that attempt to alter the levels of imports or exports Tariffs Quotas Subsidies What matters for future incomes and living standards is whether the deficit is being used to finance more consumption or more investment.

Business Cycles, Economic Growth and the Current Account Rapid growth of production and employment Associated with large or growing trade and current account deficits Slow output and employment growth Associated with large or growing surpluses

Economic downturn of 2007–2009: effect on foreign investment in U.S. Large capital inflows into the U.S. Many benefits for Americans Global economic downturn of 2007–2009 Decrease in the supply of credit that net-saver countries provide to the rest of the world? Increase of the cost of foreign savings to the United States?

How the United States Has Borrowed at Very Low Cost U.S. current account deficit Financed by Borrowing from foreigners Selling assets to foreigners Large net debtor Paradox in U.S. international transactions U.S. residents have consistently earned more income from their foreign investments Than foreigners earn from their larger U.S. investments Might be less burdensome than often portrayed

How the United States Has Borrowed at Very Low Cost What accounts for paradox? Asymmetric investment returns; rate of return advantage generally 1-2% points; given political and economic instability of other countries, U.S. firms take greater risks investing in foreign firms; higher risk, reward U.S., by contrast, seen as safe haven; foreign investors more likely to buy U.S. assets that offer low risk, return Future U.S. borrowing may be less favorable If interest rates rise, U.S. will pay higher rates Could swing U.S. investment income balance from surplus to deficit

Do Current Account Deficits Cost Americans Jobs? U.S. employment statistics don’t fit expected pattern of negative relationship between current account deficit and employment 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 Current account deficit produces jobs as result of higher employment in investment-oriented industries and indirect effect of higher investment

Can the United States Continue to Run Current Account Deficits Indefinitely U.S. current account deficit Arises mainly because foreigners desire to purchase American assets, May continue indefinitely No automatic forces will cause either a current account deficit or a current account surplus Problem If foreigners lose confidence in the ability of the U.S. to generate the resources necessary to repay the funds borrowed from abroad

Foreign holders of U.S. securities as of 2007 TABLE 1.5 Foreign holders of U.S. securities as of 2007

What Does a Current Account Deficit (Surplus) Mean? To reduce the deficit Policies that stimulate foreign growth Better to reduce the current account deficit through faster growth abroad than through slower growth at home Better achieved through increased national saving Than through reduced domestic investment

Balance of International Indebtedness Statement that summarizes fixed stock of assets and liabilities against rest of world; record of international position of U.S. at particular time Accumulated value of U.S.-owned assets abroad as apposed to foreign-owned assets in the United States

Balance of International Indebtedness Net creditor to the rest of the world Accumulated value of U.S.-owned assets abroad Exceeds the value of foreign-owned assets in the U.S. Net debtor Value of foreign-owned assets in the U.S. Exceeds the accumulated value of U.S.-owned assets abroad

TABLE 1.6 International investment position of the U.S. at year-end (in billions of dollars)

Balance of International Indebtedness Breaks down international investment holdings into several categories Policy implications can be drawn from each separate category about the liquidity status of the nation U.S. transition from net creditor to net debtor Foreign investors placed more funds in the U.S. than U.S. residents invested abroad

国际收支的分析 自主性交易，是指一国居民自主发生的经济交易，通常是为获取国际间价格、国民收入或利率等收益而进行的各种交易活动。 调节性交易，也称补偿性交易，是指一国为弥补自主性交易收支的差额而进行的各种交易活动。

国际收支的分析

国际收支的分析

国际收支的分析

国际收支平衡表记账实例 1、记账实例 以甲国六笔交易为例说明国际收支帐户的记账方法。 （1）甲国企业出口价值100万美元的设备，这一出口行为导致该企业在海外银行存款增加。 借：资本流出（本国在外国银行的存款） 100万美元 贷：商品出口： 100万美元

（2）甲国居民到外国旅游花销30万美元，这笔费用从该居民的海外存款账户中扣除。 借：服务进口 30万美元 贷：在外国银行存款 30万美元 （3）外商以价值1000万美元设备投入甲国，兴办合资企业。 借：商品进口 1000万美元 贷：外国对甲国直接投资 1000万美元

（4）甲国政府动用外汇库存40万美元向外国提供无偿援助，另提供相当于60万美元的粮食药品援助。 借：经常转移 100万美元 贷：官方储备 40万美元 商品出口 60万美元 （5）甲国某企业在海外投资所得利润150万美元。其中75万美元用于当地投资，50万美元购买当地商品运回国内，25万美元调回国内结售给政府以换回本国货币。 借：商品进口 50万美元 官方储备 25万美元 对外长期投资 75万美元 贷：海外投资利润收入 150万美元

上述六笔业务科编织成一完整的国际收支帐户表格，见下表： （ 6）甲国居民动用其在海外存款40万美元，用以购买外国某公司的股票。 借： 证券投资 40万美元 贷： 在外国银行的存款 40万美元 上述六笔业务科编织成一完整的国际收支帐户表格，见下表：

六笔交易构成的国际收支帐户 单位：万美元 项目 借方 贷方 差额 商品贸易 1000+50 100+60 -890 服务贸易 30 - 六笔交易构成的国际收支帐户 单位：万美元 项目 借方 贷方 差额 商品贸易 1000+50 100+60 -890 服务贸易 30 - -30 收入 150 经常转移 100 -100 经常账户合计 1180 310 -870 直接投资 75 1000 925 证券投资 40 -40 其他投资 30+40 官方储备 25 15 资本与金融项目合计 总计 240 1420 1110 870