[PDF Notes] What are the Items of Current Account of Balance of Payments?

According to the International Monetary Fund (IMF), the current account of the balance of payments includes the following items

1. Merchandise:

Exports and imports of goods form the visible account and have a dominant position in the current account of balance of payments. Exports constitute the credit side and import the debit side.

2. Travel:

Travel is an invisible item in the balance of payments. Travel may be for reasons of business, education, health, international conventions or pleasures. Expenditure by the foreign tourists in our country forms the credit item and the expenditure by our tourist’s abroad constitutes the debit item in our balance of payments.

3. Transpiration:

International transpiration of goods is another invisible transaction. It includes warehousing (while in transit) and other transit expenses. Use of domestic transpoart services by the foreigners is the credit item and the use of foreign transport services by domestic traders is the debit item.

4. Insurance:

Insurance premium and payments of claims is also an invisible transaction in a country’s balance of payments account. Insurance policies sold to foreigners are a credit item and the insurance policies purchased by domestic users from the foreigners are a debit item.

5. Investment Income:

Another invisible item in the current account of the balance of payment is the investment income which includes interest, rents, dividends and profits. Income received on capital invested abroad is the credit item and income paid on capital borrowed from abroad is the debit item.

6. Government Transactions:

Government transactions refer to the expenditure incurred by a government for the upkeep of its organisations abroad (e.g., payment of salaries to the ambassadors, high commissioners, etc.). Such amounts received by a government from abroad constitute the credit item and made to the foreign governments form the debit item.

7. Miscellaneous:

Miscellaneous invisible items include expenditure incurred on services like advertise­ment, commissions, film rental, patent fees, royalties, subscriptions to the periodicals, membership fees, etc. Such payments received by a country from abroad are a credit item and made by a country to foreign countries are a debit item.

8. Donations and gifts:

Donations, gifts, etc, received by a country from abroad are the credit item and sent to the foreign countries are the debit item in the balance of payments account. Donations and gifts are ‘unilateral transfers’ or ‘unrequited payments’ because nothing is given in return for them.

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