Current Account Balance

Categories: Econ, Banking

When we’re talking current account balance in economics, we’re probably talking macro (not micro, like in your actual bank account). In macroeconomics, the current account is the sum of a country’s net income, direct payments, asset income, and trade balance (imports and exports).

When the trade deficit of a country is large, it helps to cancel out any positive net income or direct transfers. The net income of a country is the income that its country’s residents make (if a resident makes money at home and abroad, both count; foreigner income doesn’t).

Direct transfers are just what they sound like: transfers coming in (or going out of) the country. For instance, Mexico gets billions every year, as Mexicans send their families in Mexico money from abroad.

Asset income is all assets, including federal assets (government reserves and securities) and things like real estate that people (usually of the rich variety) own.

The bottom line: when the current account balance is positive, it means the country can pay its purchases and debts, and can be considered a net lender to the world. If it’s in the red, the country has more debt than money to pay off that debt, and is considered a net borrower to the world.

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