The Balance of Payments

• Balance of payments is :: the record of the transactions between Australia and the rest of the world during a given period, consisting of the current account and the capital and financial account.

• All money that flows in is referred to as :: a credit, (positive transaction)

• All money that flows out is referred to as :: a debit (negative transaction)

• The balance on current account (CA) plus the balance on capital & financial account (KAFA) equals zero.

  • hence the “Balance of Payments”

• the balance is due to the Double Entry accounting framework:

  1. For every transaction between an Australian resident and the rest of the world, the balance of payments records two entries
  2. When economic value is provided, a credit entry is made 
  3. When economic value is received, a debit entry is made
  4. The credit and debit are for the same amount but opposite signs (one positive, one negative)
  5. This ensures the total balance of payments is always zero

• The balance of payments is the most important economic indicator of the relationship between Australia and the global economy, summarising all transactions that Australia has with rest of world