√ Definition of Balance of Payments, Components, Types and Functions
Definition of Balance of Payments, Components, Types and Functions - In this discussion, we will explain the balance of payments. Which includes the meaning of the balance of payments, components, types and functions of the balance of payments which are explained in a complete and light manner.
Definition of Balance of Payments, Components, Types and Functions
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Definition of Balance of Payments
The balance of payments is a bookkeeping balance that describes the value of a type of financial or economic transaction carried out by a country with other countries within a span of one year which is embodied in the form Money.
Another understanding of the balance of payments is a concise view of a transaction between residents of a country with residents of other countries in a certain period of time which is generally one year.
In the balance of payments is divided into two parts, namely the liabilities and assets. The liabilities or debit section (-) records transactions that result in countries making payments to other countries.
Meanwhile, the assets or credit (+) section records transactions that make the state accept payments from other countries.
In general, the balance of payments is divided into current account countries (which consist of balance sheets trade, services balance, and transfer payments and balance of capital and financial traffic, and items financial.
Balance of payments transactions can be divided into two types of transactions, namely:
- Debit transaction: Is a transaction that causes the flow of money (foreign exchange) from within the country to abroad.
- Credit transaction: Is a transaction that causes the flow of money (foreign exchange) from abroad to within the country.
Components of the Balance of Payments
The balance of payments can be divided into five interrelated parts of the balance sheet, which are as follows:
-
Trade Balance (Balance of Trade)
Trade balance, which contains a list or balance that contains a comparison between the amount of exports and the amount of imports of a country within one year. If the value of exports is higher than imports, the country experiences a surplus in the trade balance. But if the value of exports is lower or less than the value of imports, then the country experiences a deficit in the trade balance. A surplus trade balance is also known as an active trade balance. Then the deficit trade balance is also called a passive trade balance.
-
Services Balance
The services balance is a balance sheet that records the services provided and received by a country to other countries over a period of one year. For example transportation services, insurance, tourism, trade services and banking services.
-
Capital Returns Balance
The balance of capital results is a balance sheet that writes down all payments and receipts of interest, dividends, wages for foreign workers, as well as gifts originating from abroad.
-
Monetary Traffic Balance (Monetary Account)
The monetary traffic balance is a balance that writes and shows the development or changes in a country's foreign exchange reserves. The reserves in question consist of gold and foreign exchange.
Types of Balance of Payments
The types or types of balance of payments are as follows:
-
Balance of Payments Deficit
The deficit balance of payments is the balance of payments that describes the number of foreign payment transactions (debit transaction) is greater than the receipt transaction originating from abroad (credit transaction). -
Surplus Balance of Payments
A surplus balance of payments is a balance of payments that describes a smaller debit transaction. -
Balanced Balance of Payments
Is a balance of payments that shows debit transactions equal to credit transactions.
Balance of Payments Function
The function of the balance of payments is needed by a country for that it needs to be made. The following is the function of the balance of payments as follows:
- A bookkeeping tool so that the government can make the right decisions, about the amount of goods and services that should go in or out within the territorial boundaries of a country and also to obtain information regarding the budget of means of payment from outside country.
- A tool to measure the economic situation related to international trade of a country. As a tool to show an overview of the effect of foreign transactions on the national income of the country concerned.
- Has a function to obtain detailed information relating to foreign trade
- Has the function of comparing items in the country's balance of payments with certain countries
- Has a function to take monetary policy that will be carried out by a country.
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