Surplus on Current Account

There are two kinds of countries in this world: those who lend, and those who borrow.

Of course, many nations do both, but it’s the “net” factor that counts. If you’re lending more than you’re borrowing, you’re a net lender. Vice versa, and you’re a net borrower.

When there’s a surplus on the current account, it means a nation is a net lender to the rest of the world. If a country was in net debt, well...no surplus or net lender status for you, buddy.

The current account of a country is the net imports and exports over a certain timeframe, say, a month or a year...as well as earnings from foreign investments and transfer payments. When a country is getting paid more than it's lending out (paid via money from exports, foreign investment returns, and transfer payments like foreign aid), the current account goes up. When that incoming cash is more than the outgoing cash (lost cash from imports, foreign investors’ investment returns, and outgoing foreign aid), you’ve got a surplus.

While the cash going in and out is coming from many places, trade is no doubt the largest factor, and the one that usually tips the net current account scale. Thus, high export countries usually have a surplus on their current accounts. Think: China and their manufactured goods (though that’s changing), and Germany and Japan with their automobiles. Everyone wants what they’re selling.

While having a surplus on your current account sounds brag-worthy, it’s not necessarily. For instance, it could indicate that your domestic economy is sluggish.

Everyone’s thinking it...so...where does the U.S. fall in the grand scheme of things?

The U.S. is faaaaar away from a surplus. Pretty much the farthest of all countries, being a net borrower. That’s partially because everyone wants U.S. dollars, and because U.S. consumers want foreign goods more than the rest of the world wants U.S. goods. Meanwhile, Germany is king of current account surplus, with China not far behind...and Russia is well in the surplus as well.