Current Account (Balance of Payments)
IntermediateThe current account, in the balance of payments, records a country's transactions with the rest of the world in goods, services, income and transfers over a period.
The current account has several parts. The largest is usually the trade balance, exports minus imports of goods and services. It also includes primary income, such as interest, dividends and wages earned from abroad minus those paid to foreigners, and secondary income, such as money sent home by workers abroad, foreign aid and other transfers.
If a country earns more from the rest of the world than it pays, it has a current account surplus. If it pays more than it earns, it has a deficit.
For example, a country might have a trade deficit of 60 billion, earn 15 billion more in investment income than it pays out and pay out 5 billion more in transfers than it receives. Its current account deficit would be 50 billion.
A current account deficit means the country is spending more abroad than it earns and must be financed by borrowing from abroad or selling assets to foreigners. This shows up as a matching surplus in the financial account. Large, persistent deficits can make a country vulnerable if foreign investors lose confidence.
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