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Definition: Balance of payments from The AMA Dictionary of Business and Management

National accounts representing all transactions with the outside world, divided into current account and capital account. The former includes the trade account, which records the balance of imports and exports. Overall, the accounts must always be in balance. A deficit or surplus requires purchase or sale of foreign currencies, monitored by the International Monetary Fund.


Summary Article: balance of payments from The Columbia Encyclopedia

balance between all payments out of a country within a given period and all payments into the country, an outgrowth of the mercantilist theory of balance of trade. Balance of payments includes all payments between a country and its trading partners and is made up of the balance of trade, private foreign loans and their interest, loans and grants by governments or international organizations, and movements of gold (capital account). A chronically unfavorable balance of payments, when debits exceed credits, may affect the stability of the nation's currency, particularly where exchange rates are no longer fixed. After World War II the International Monetary Fund was established to handle problems relating to the balance of payments and foreign exchange.

Since the late 1950s the United States has generally experienced an unfavorable balance of payments because of large-scale foreign aid, sizable U.S. investment in Europe, and major U.S. military investments abroad. In the early 1970s the United States, in an effort to create a more favorable balance of payments, announced (1971, 1973) a devaluation of the U.S. dollar. However, the increase in the cost of petroleum from the Arab states (1973–74) had a negative effect on the balance of payments in the United States and most countries in Western Europe. In addition, tight money policies and high deficits adversely affected the savings rate in the United States in the 1980s and caused the balance of payments to decline even further. As a result, the United States looked to foreign borrowing to fill the gap, but the interest payments only increased the shortfall in the balance of payments. In the late 1990s and subsequent years the U.S. balance of payments reached record negative levels.

  • See Fatemi, N., Problems of Balance of Payment and Trade (1975);.
  • Phalle, T. De Saint, Trade, Inflation, and the Dollar (1981);.
  • Bigman, D., Floating Exchange Rates and the State of World Trade Payments (1984).
The Columbia Encyclopedia, © Columbia University Press 2017

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