Authors' Update

Changes in Balance of Payments Terminology

Since the current edition of International Economics: Theory and Practice went to press, the Bureau of Economic Analysis announced changes to the way in which the U.S. Balance of Payments is reported. The example in the text (the 1997 Balance of Payments) uses the old classification, but articles or citations you read in the future may incorporate the new terminology.

The most significant change is that the accounts are now divided into three main groupings instead of the standard current and capital accounts. What was called the capital account (purchases and sales of assets, direct investment, etc.), is now called the financial account. The former current account has been split in two, the current account and the capital account, to better separate current income from changes in the stock of assets. The current account is still used for purchases and sales of goods and services and current income. The new capital account is primarily used for one time changes in the stock of assets. It now includes unilateral current transfers which were in the current account but are really shifts in assets, not current income. The most significant item is debt forgiveness, which if kept in the current account could generate misleading swings in the current account. Also included in the new capital account are migrant transfers, those assets which are brought with a migrant when they move, as well as the sale or purchase of rights to natural resources or patents. The table below gives some examples of transactions whose classification has changed.

Examples of Transactions That Have Been Reclassified
Transaction Placement in U.S.
Balance of Payments
Previously Now
A U.S. citizen purchases an Italian bond Capital Account Debit Financial Account Debit
A Japanese citizen purchases U.S. Treasury bills Capital Account Credit Financial Account Credit
The U.S. government forgives debt owed to it by Ethiopia Current Account Debit Capital Account Debit
A Canadian citizen immigrates to the United States and transfers a bank account to the U.S. Current Account Credit Capital Account Credit
Note: Purchases of goods and services are recorded in the current account in the same manner as before.

The offsetting bookkeeping for all non-transfer items will still take place between the current and financial accounts just as it is described in the text between the current and capital accounts. Entries for transfers in the current and financial accounts are offset by the entries for current and capital transfers. When the central bank does not intervene (and hence the balance of payments sums to zero), the sum of all three accounts will equal zero. In general the capital account will be much smaller than the current or financial accounts, especially for the United States.

A description of the changes along with revised estimates for 1982-98 can be found in the article by Christopher Bach, "U.S. International Transactions, Revised Estimates for 1982-98," Survey of Current Business, 79 (July 1999):60-74. (Web address: These changes were made in conjunction with the IMF's new standards. A description of these new standards can be found in "The International Monetary Fund's New Standards for Economic Statistics," Survey of Current Business, 76 (October 1996):37-47.

2000-2001 by Addison Wesley Longman
A division of Pearson Education