Balance of Payments<\/strong> is the difference between the total flow of money coming into a country and the total flow of money going out of a country during\u00a0a period of time.\u00a0Although\u00a0related to the balance of trade, balance of payments is the record of all<\/strong>\u00a0economic\u00a0transactions between individuals, firms, and the government and the rest of the world in a particular period. Thus the balance of payments includes all<\/strong> external transactions of a country, including\u00a0payments for the country's exports and imports\u00a0of\u00a0goods,\u00a0services,\u00a0foreign investments, loans and foreign aid, financial capital, and\u00a0financial transfers.<\/p>\r\n For instance, if a U.S. company buys land or a factory in another country, that investment is included in the U.S. balance of payments as an outflow<\/strong>. Likewise, if a U.S. company is sold to a foreign company, it's included in the balance of payments. Didi Chuxing, the Chinese ride-hailing service, bought Uber\u2019s subsidiary in China\u00a0in a deal valued at $35 billion. This sale will created a cash inflow<\/strong> to the United States. However, over the long term, it will cause a decrease the amount of cash flowing into the U.S. from China because the revenue from the rides will go to Didi Chuxing rather than Uber.<\/p>\r\n If a nation receives foreign aid or borrows money from another country, this amount is also reflected in its balance of payments as a cash inflow. For example, the United States regularly provides humanitarian aid in response to disasters and conflicts around the world. In 2021, the U.S. Agency for International Development's Bureau for Humanitarian Assistance distributed $8 billion, less than 1% of the entire federal budget, for such things as emergency food deliveries and tools needed for recovery efforts for 82 crises around the world. These payments are recorded as an outflow in the U.S.'s balance of payments but an inflow for the 68 countries that received the aid.[footnote]USAID.gov. \u201cBHA FY 2012 Fact Sheet.\u201d Accessed March 28, 2023. https:\/\/www.usaid.gov\/sites\/default\/files\/documents\/BHA_Fact_Sheet-FY2021.pdf[\/footnote]<\/p>\r\n It's tempting to make judgments about these different types of trade measurements and conclude that trade surpluses and favorable balance of payments are always indicators of a strong economy, but unfortunately it's not so simple. Balance of trade and balance of payments are starting points\u2014much in the way that an individual's credit rating might be a starting point for seeking a loan.\u00a0How the numbers\u00a0are interpreted and viewed by the country's leaders, other countries, and the world depends on many factors, such as where\u00a0a country is in its economic development, the factors contributing to the balance of trade or payments, the health\u00a0of the overall global economy, what the country is doing with its imports, and so on.<\/p>\r\n<\/section>\r\n \u00a0As you might guess, assessments of economic factors and actions that governments take can be political. You'll learn more about these considerations later in this module when we discuss how nations attempt to restrict or control trade.<\/p>\r\n Balance of Payments<\/strong> is the difference between the total flow of money coming into a country and the total flow of money going out of a country during\u00a0a period of time.\u00a0Although\u00a0related to the balance of trade, balance of payments is the record of all<\/strong>\u00a0economic\u00a0transactions between individuals, firms, and the government and the rest of the world in a particular period. Thus the balance of payments includes all<\/strong> external transactions of a country, including\u00a0payments for the country’s exports and imports\u00a0of\u00a0goods,\u00a0services,\u00a0foreign investments, loans and foreign aid, financial capital, and\u00a0financial transfers.<\/p>\n For instance, if a U.S. company buys land or a factory in another country, that investment is included in the U.S. balance of payments as an outflow<\/strong>. Likewise, if a U.S. company is sold to a foreign company, it’s included in the balance of payments. Didi Chuxing, the Chinese ride-hailing service, bought Uber\u2019s subsidiary in China\u00a0in a deal valued at $35 billion. This sale will created a cash inflow<\/strong> to the United States. However, over the long term, it will cause a decrease the amount of cash flowing into the U.S. from China because the revenue from the rides will go to Didi Chuxing rather than Uber.<\/p>\n If a nation receives foreign aid or borrows money from another country, this amount is also reflected in its balance of payments as a cash inflow. For example, the United States regularly provides humanitarian aid in response to disasters and conflicts around the world. In 2021, the U.S. Agency for International Development’s Bureau for Humanitarian Assistance distributed $8 billion, less than 1% of the entire federal budget, for such things as emergency food deliveries and tools needed for recovery efforts for 82 crises around the world. These payments are recorded as an outflow in the U.S.’s balance of payments but an inflow for the 68 countries that received the aid.[1]<\/sup><\/a><\/p>\n It’s tempting to make judgments about these different types of trade measurements and conclude that trade surpluses and favorable balance of payments are always indicators of a strong economy, but unfortunately it’s not so simple. Balance of trade and balance of payments are starting points\u2014much in the way that an individual’s credit rating might be a starting point for seeking a loan.\u00a0How the numbers\u00a0are interpreted and viewed by the country’s leaders, other countries, and the world depends on many factors, such as where\u00a0a country is in its economic development, the factors contributing to the balance of trade or payments, the health\u00a0of the overall global economy, what the country is doing with its imports, and so on.<\/p>\n<\/section>\n \u00a0As you might guess, assessments of economic factors and actions that governments take can be political. You’ll learn more about these considerations later in this module when we discuss how nations attempt to restrict or control trade.<\/p>\ntrade surpluses and favorable balance of payments as economic indicators<\/h3>\r\n
Balance of Payments<\/h2>\n
trade surpluses and favorable balance of payments as economic indicators<\/h3>\n