Balance of International Payments

When money moves across international borders, that gets counted in the balance of international payments. It's a record of a country's monetary transactions with other countries. Not just the country's government, though. It also includes citizens and companies within the country.

The BoP, as it's sometimes called, has a few components. It includes money used for imports and exports (cash goes out for imports; it comes in for exports), capital moving in or out of the country, and transfer payments (like when your Canadian grandma sends you $5 for your birthday).

The BoP should equal zero. It's fundamentally a bookkeeping exercise, like the double-entry system your accountant is always droning on about. In practice, a country's economy is such a dynamic thing that it's almost impossible to track everything necessary to create a true zero-sum balance. But that doesn't mean we shouldn't try.

So yeah, the BoP is simply a document that lays out all of the transactions between people and businesses in one country with the rest of the world (over a set period of time, of course). It's an interesting look at economic relations and transactions flowing around the world.

The BoP of a country has three main components: the current account, capital account, and financial account. Money made from stuff sold is recorded as a credit, and money spent from stuff bought is recorded as a debit.

The current account is made up of consumer goods and services. The capital account tracks movement of capital moving in and out of a country for investment purposes. The financial account records payment flows of international financial assets and investments.

It also helps countries make sure they're on the right track. If they're off balance, they can make policies (such as trade policies) to make sure their economy is doing a-okay. Do that BoP.