1. International Economics
国际经济学
Lectured by Yuanfen Tu
School of International Trade and Economics

2. International Economics
International Trade Relations (International Trade)
International Monetary Relations (International Finance)

3. 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）

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

5. International Economics By Robert J. Carbaugh 9th Edition
Chapter 1:
The Balance of Payments

6. 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.

7. 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

8. 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

9. 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

10. 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

12. 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

13. 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

14. 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

15. International payments process
FIGURE 10.1
International payments process

16. 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

17. 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

18. 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

19. 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?

20. 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.

21. 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

22. 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

23. 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

24. 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

25. 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

26. 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

27. 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.

28. 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

29. U.S. reserve assets, 2008*
TABLE 1.1

30. Selected U.S. liabilities to foreign official institutions, 2008*
TABLE 1.2
Selected U.S. liabilities to foreign official institutions, 2008* 30

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

32. 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

33. U.S. balance of payments, 2008 (billions of dollars)*
TABLE 1.3
U.S. balance of payments, 2008 (billions of dollars)* 33

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

35. 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

36. 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

37. 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

38. 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

39. 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
Improved net foreign investment position
Capital outflows
Net supplier of funds (lender)

40. 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

41. 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)

42. 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

43. 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.

44. 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

45. 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?

46. 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

47. How the United States Has Borrowed at Very Low Cost
U.S. current account deficit
Might be less burdensome than often portrayed
Not a threat to total employment for the economy as a whole
Deficit = net inflow of foreign investment
Change the composition of output and employment

48. 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

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

50. 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

51. Balance of International Indebtedness
A fixed stock of assets and liabilities against the rest of the world
Record of the international position of the U.S. at a particular time
Accumulated value of U.S.-owned assets abroad as apposed to foreign-owned assets in the United States

52. 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

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

54. 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

60. 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： 万美元

61. （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 万美元
贷：在外国银行存款 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 万美元
贷：外国对甲国直接投资 万美元

62. （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 万美元
贷：官方储备 万美元
商品出口 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 万美元
官方储备 万美元
对外长期投资 万美元
贷：海外投资利润收入 150万美元

63. 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 万美元
贷： 在外国银行的存款 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：

64. 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
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