# Balance of payments: Wikis

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# Encyclopedia

A Balance of payments (BOP) sheet is an accounting record of all monetary transactions between a country and the rest of the world. [1] These transactions include payments for the country's exports and imports of goods, services, and financial capital, as well as financial transfers. The BOP summarises international transactions for a specific period, usually a year, and is prepared in a single currency, typically the domestic currency for the country concerned. Sources of funds for a nation, such as exports or the receipts of loans and investments, are recorded as positive or surplus items. Uses of funds, such as for imports or to invest in foreign countries, are recorded as a negative or deficit item.

When all components of the BOP sheet are included it must balance - that is, it must sum to zero - there can be no overall surplus or deficit. For example, if a country is importing more than it exports, its trade balance will be in deficit, but the shortfall will have to be counter balanced in other ways - such as by funds earned from its foreign investments, by running down reserves or by receiving loans from other countries.

While the overall BOP sheet will always balance when all types of payments are included, imbalances are possible on individual elements of the BOP, such as the current account. This can result in surplus countries accumulating hoards of wealth, while deficit nations become increasingly indebted. Historically there have been different approaches to the question of how to correct imbalances and debate on whether they are something governments should be concerned about. With record imbalances held up as one of the contributing factors to the financial crisis of 2007–2010, plans to address global imbalances are now high on the agenda of policy makers for 2010.

## Make up of the Balance of Payments sheet

### Standard Definition

Since 1973, the two principle divisions on the BOP have been the current account and the capital account.

The current account shows the net amount a country is earning if it is in surplus, or spending if it is in deficit. It is the sum of the balance of trade (net earnings on exports - payments for imports) , factor income (earnings on foreign investments - payments made to foreign investors) and cash transfers.

The capital account records the net change in ownership of foreign assets. It includes the reserve account (the international operations of a nations central bank), along with loans and investments between the country and the rest of world (but not the future regular repayments / dividends that the loans and investments yield, those are earnings and will be recorded in the current account).

Expressed with the standard meaning for the capital account, the BOP identity is:

$\mbox {BOP} = \mbox {Current account} - \mbox{Capital account } \,$ (+ or - Balancing item)

The balancing item is simply an amount that accounts for any statistical errors and make sure the current and capital accounts sum to zero. At high level, by the principles of double entry accounting, an entry in the current account gives rise to an entry in the capital account, and in aggregate the two accounts should balance. A balance isn't always reflected in reported figures, which might, for example, report a surplus for both accounts, but when this happens it always means something has been missed--most commonly, the operations of the country's central bank. [2]

An actual balance sheet will typically have numerous sub headings under the principle divisions. For example, entries under Current account might include:

• Exports - a credit entry
• Imports - a debit entry
• Trade balance - the sum of Exports and Imports
• Factor income - repayments and dividends from loans and investments
• Factor earnings - a credit entry
• Factor payments - a debit entry
• Factor income balance - the sum of earnings and payments.

Especially in older balance sheets, a common division was between visible and invisible entries. Visible trade recorded imports and exports of physical goods (entries for trade in physical goods excluding services is now often called the merchandise balance). Invisible trade would record international buying and selling of services, and sometimes would be grouped with transfer and factor income as invisible earnings. [1]

### Discrepancies in the use of term "Balance of Payments"

According to economics writer J. Orlin Grabbe the term Balance of Payments is sometimes misused by people who aren't aware of the accepted meaning, not only in general conversation but in financial publications and the economic literature. [2]

A common source of confusion is to exclude the reserve account entry which records the activity of the nation's central bank. Once this is done, the BOP can be in surplus (which implies the central bank is building up foreign exchange reserves) or in deficit (which implies the central bank is running down its reserves or borrowing from abroad )[1] [2]The term can also be misused to mean just relatively narrow parts of the BOP such as the trade deficit, which means excluding parts of the current account and the entire capital account. Another cause of confusion is the different naming conventions in use. [3] Before 1973 there was no standard way to break down the BOP sheet, with the separation into invisible and visible payments sometimes being the principle divisions. The IMF have their own standards for the BOP sheet, at high level it's the same as the standard definition, but it has different nomenclature, in particular with respect to the meaning given to the term capital account.

### The IMF Definition

The IMF use a particular set of definitions for the BOP, which is also used by the OECD , and the United Nations' SNA. [4]

The main difference with the IMF definition is that they use the term financial account to capture transaction that in the standard definition are recorded in the capital account. The IMF do use the term capital account, to designate a sub set of transactions that according to usage common in the rest of the world form a small part of the overall capital account. [5] The IMF separate these transaction out to form an additional top level division of the BOP sheet. Expressed with the IMF definition, the BOP identity can be written:

$\mbox {BOP} = \mbox {Current account} - \mbox{Financial account} - \mbox{Capital account} \,$ (+ or - Balancing item)

The IMF use the term current account with the same meaning as the standard definition, although they have their own names for their three leading sub divisions, which are:

• The goods and services account (the overall trade balance)
• The primary income account (factor income such as from loans and investments)
• The secondary income account (transfer payments)

## Imbalances

The US dollar has been the leading reserve asset since the end of the gold standard.

While the BOP has to balance overall, surpluses or deficits on its individual elements can lead to imbalances between countries. In general there is concern over deficits in the current account. Countries with deficits in their current accounts will build up increasing debt and/or see increased foreign ownership of their assets. The types of deficits that typically raise concern are [1]

• A visible trade deficit where a nation is importing more physical goods than it exports (even if this is balanced by the other components of the current account.)
• An overall current account deficit.
• A basic deficit which is the current account plus foreign direct investment (but excluding other elements of the capital account like short terms loans and the reserve account.)

As discussed in the history section below, the Washington Consensus period saw a swing of opinion towards the view that there is no need to worry about imbalances. Opinion swung back in the opposite direction in the wake of financial crisis of 2007–2009. Mainstream opinion expressed by the leading financial press and economists, international bodies like the IMF--as well as leaders of surplus and deficit countries--has returned to the view that large current account imbalances do matter. [6] Some economists do, however, remain relatively unconcerned about imbalances [7] and there have been assertions, such as by Michael P. Dooley, David Folkerts-Landau and Peter Garber , that nations need to avoid temptation to switch to protectionism as a means to correct imbalances. [8]

### Causes of BOP Imbalances

There are conflicting views as to the primary cause of BOP imbalances, with much attention on the US who currently have by far the largest deficit. The conventional view is that current account factors are the primary cause [9] - these include the exchange rate, the government's fiscal deficit, business competitiveness , and private behaviour such as the willingness of consumers to go into debt to finance extra consumption. [10] The alternatively view, argued at length in a 2005 paper by Ben Bernanke , is that the primary driver is the capital account, where a global savings glut caused by savers in surplus countries, runs ahead of the available investment opportunities, and is pushed into the US resulting in excess consumption and asset price inflation. [11]

### Reserve Asset

In the context of BOP and international monetary systems, the reserve asset is the currency or other store of value that is primarily used by nations for their foreign reserves. [12] BOP imbalances tend to manifest as hoards of the reserve asset being amassed by surplus countries, with deficit countries building debts denominated in the reserve asset or at least depleting their supply. Under a gold standard, the reserve asset for all members of the standard is gold. In the Bretton Woods system , either gold or the US Dollar could serve as the reserve asset, though its smooth operation depended on countries apart from the US choosing to keep most of their holdings in dollars. Following the ending of Bretton Woods, there has been no de jure reserve asset, but the US dollar has remained by far the principal de facto reserve. Global reserves rose sharply in the first decade of the 21st century, partly as a result of the 1997 Asian Financial Crisis, where several nations ran out of foreign currency needed for essential imports and thus had to accept deals on unfavourable terms. The IMF estimate that between 2000 to mid-2009, official reserves rose from \$1,900bn to \$6,800bn. [13] As of 2009 approx 65% of the world's \$6,800bn total is held in US dollars, with approx 25% in Euro. The UK Pound , Japanese yen, IMF SDRs , and precious metals [14] also play a role. In 2009 Zhou Xiaochuan , governor of the People's Bank of China , proposed a gradual move towards increased use of SDRs, and also for the national currencies backing SDRs to be expanded to include the currencies of all major economies. [15] [16] Dr Zhou's proposal has been described as one of the most significant ideas expressed in 2009 .[17] While the current central role of the dollar does give the US some advantages such as lower cost of borrowings, it also contributes to the pressure causing the US to run a BOP deficit, due to the Triffin dilemma . In a November 2009 article published in Foreign Affairs magazine, economist C. Fred Bergsten argued that Dr Zhou's suggestion or a similar change to the international monetary system would be in the United States' best interests as well as the rest of the world's.[18]

## Balancing Mechanisms

One of the three fundamental functions of an international monetary system is to provide mechanisms to correct imbalances. [19] [20]

Broadly speaking, there are three possible methods to correct BOP imbalances, though in practice a mixture including some degree of at least the first two methods tends to be used. These methods are adjustments of exchange rates; adjustment of a nations internal prices along with its levels of demand; and rules based adjustment. [21] Increasing the desirability of exports through other means can also help, though it is generally assumed a nation is always trying to develop and sell its products to the best of its abilities.

### Rebalancing by changing the exchange rate

An upwards shift in the value of a nation's currency relative to others will make a nation's exports less competitive and make imports cheaper and so will tend to correct a current account surplus. It also tends to make investment flows into the capital account less attractive so will help with a surplus there too. Conversely a downward shift in the value of a nation's currency makes it more expensive for its citizens to buy imports and increases the competitiveness of their exports, thus helping to correct a deficit (though the solution often doesn't have a positive impact immediately due to the Marshall–Lerner Condition. [22]

Exchange rates can be adjusted by government [23] in a rules based or managed currency regime, and when left to float freely in the market they also tend to change in the direction that will restore balance. When a country is selling more than it imports, the demand for its currency will tend to increase as other countries ultimately [24] need the selling country's currency to make payments for the exports. The extra demand tends to cause a rise of the currencies price relative to others. When a country is importing more than it exports, the supply of its own currency on the international market tends to increase as it tries to exchange it for foreign currency to pay for its imports, and this extra supply tends to cause the price to fall. BOP effects are not the only market influence on exchange rates however, they are also influenced by differences in national interest rates and by speculative flows.

### Rebalancing by adjusting internal prices and demand

When exchange rates are fixed by a rigid gold standard, [25] or when imbalances exist between members of a currency union such as the Eurozone, the standard approach to correct imbalances is by making changes to the domestic economy. To a large degree, the change is optional for the surplus country, but compulsory for the deficit country. In the case of a gold standard, the mechanism is largely automatic. When a country has a favourable trade balance, as a consequence of selling more than it buys it will experience a net inflow of gold. The natural effect of this will be to increase the money supply, which leads to inflation and an increase in prices, which then tends to make its goods less competitive and so will decrease its trade surplus. However the nation has the option of taking the gold out of economy (sterilising the inflationary effect) thus building up a hoard of gold and retaining its favourable balance of payments. On the other hand, if a country has an adverse BOP its will experience a net loss of gold, which will automatically have a deflationary effect, unless it chooses to leave the gold standard. Prices will be reduced, making its exports more competitive, and thus correcting the imbalance. While the gold standard is generally considered to have been successful [26] up until 1914, correction by deflation to the degree required by the large imbalances that arose after WWI proved painful, with deflationary policies contributing to prolonged unemployment but not re-establishing balance. Apart from the US most former members had left the gold standard by the mid 1930s.

A possible method for surplus countries such as Germany to contribute to re-balancing efforts when exchange rate adjustment is not suitable, is to increase its level of internal demand (i.e. its spending on goods). While a current account surplus is commonly understood as the excess of earnings over spending, and alternative expression is that it is the excess of savings over investment. [27] That is:

$\mbox {CA} = \mbox {NS} - \mbox{NI } \,$ {where CA = current account, NS = national savings (private plus government sector) , NI = national investment.}

If a nation is earning more than it spends the net effect will be to build up savings, except to the extent that those savings are being used for investment. If consumers can be encouraged to spend more instead of saving, or if the government runs a fiscal deficit to offset private savings, or if investment is increased, then any current account surplus will tend to be reduced. However in 2009 Germany amended her constitution to prohibit running a deficit greater than 0.35% of her GDP [28] and calls to reduce her surplus by increasing demand have not been welcome by officials, [29] adding to fears that the 2010s will not be an easy decade for the eurozone. [30]

### Rules based rebalancing mechanisms

Nations can agree to fix their exchange rates against each other, and then correct any imbalances that arise by rules based and negotiated exchange rate changes and other methods. The Bretton Woods system of fixed but adjustable exchange rates was an example of a rules based system, though it still relied primarily on the two traditional mechanisms. Keynes, one of the architects of the Bretton Woods system had wanted additional rules to encourage surplus countries to share the burden of rebalancing, as he argued that they were in a stronger position to do so. Keynes suggested that traditional balancing mechanisms should be supplemented by the threat of confiscation of a portion of excess revenue if the surplus country did not choose to spend it on additional imports. However his ideas were not accepted by the Americans at the time. In 2008 and 2009, American economist Paul Davidson had been promoting his revamped form of Keynes's plan as a possible solution to global imbalances which in his opinion would expand growth all round with out the downside risk of other rebalancing methods. [22] [31]

## History of Balance of Payments issues

Historically, accurate balance of payments figures were not generally available. However, this did not prevent a number of switches in opinion on questions relating to whether or not a nations government should use policy to encourage a favourable balance.

### Pre 1820: Mercantilism

Up until the early 19th century, measures to promote a trade surplus such as tariffs were generally favoured. Power was associated with wealth, and with low levels of growth, nations were best able to accumulate funds either by running trade surpluses or by forcefully confiscating the wealth of others. From about the 16th century, Mercantilism was a prevalent theory influencing European rulers, who sometimes strove to have their countries out sell competitors and so build up a "war chest" of gold. [32] This era saw low levels of economic growth; average global per capita income is not considered to have significantly risen in the whole 800 years leading up to 1820, and is estimated to have increased on average by less than 0.1% per year between 1700 - 1820. [33]

### 1820 - 1914: Free Trade

Gold was the primary reserve asset during the gold standard era.

From the late 18th century, mercantilism was challenged by the ideas of Adam Smith and other economic thinkers favouring free trade. After victory in the Napoleonic wars Great Britain began promoting free trade, unilaterally reducing her trade tariffs. Hoarding of gold was no longer encouraged, and in fact Britain exported more capital as a percentage of her national income than any other creditor nation has since.[34] Great Britain's capital exports further helped to correct global imbalances as they tended to be counter cyclical, rising when Britain's economy went into recession, thus compensating other states for income lost from export of goods.[33] According to historian Carroll Quigley, Great Britain could afford to act benevolently [35] in the 19th century due to the advantages of her geographical location, her naval power and her economic ascendancy as the first nation to enjoy an industrial revolution [36] . Though Current Account controls were still widely used (in fact all industrial nations apart from Great Britain and the Netherlands actually increased their tariffs and quotas in the decades leading up to 1914, though this was motivated more by a desire to protect "infant industries" than to encourage a trade surplus [33]) , capital controls were largely absent, and people were generally free to cross international borders without requiring passports. A gold standard enjoyed wide international participation especially from 1870, further contributing to close economic integration between nations. The period saw substantial global growth, in particular for the volume of international trade which grew tenfold between 1820 - 1870 and then by about 4% annually from 1870 to 1914. [33]

### 1914 - 1945: de-Globalisation

The favourable economic conditions that had prevailed up until 1914 were shattered by the first world war, and efforts to re-establish them in the 1920s were not successful. Several countries rejoined the gold standard around 1925. But surplus countries didnt "play by the rules", [33] sterilising gold inflows to a much greater degree than had been the case in the pre war period. Defecit nations such as Great Britain found it harder to adjust by deflation as workers were more enfranchised and unions in particular were able to resist downwards preasure on wages. During the great depression most countries abandoned the gold standard, but imbalances remained an issue and international trade declined sharply. There was a return to mercantilist type "beggar thy neighbour" policies, with countries competitively devaluing their exchange rates, thus effectively competing to export unemployment. [33]

### 1945 - 1971: Bretton Woods

Following World War II, the Bretton Woods institutions (the International Monetary Fund and World Bank) were set up to support an international monetary system designed to encourage free trade while also offer states options to correct imbalances without having to defalte their economies. Fixed but flexible exchange rates were established, with the system anchored by the dollar which alone remained convertible into gold, The Bretton Woods system ushered in a period of high global growth, known as the Golden Age of Capitalism, however it came under pressure due to imbalances related to the central role of the dollar, with imbalances causing gold to flow out of the US and a loss of confidence in the United States ability to supply gold for all future claims by dollar holders. [33]

### 1971 – 2009: Transition, Washington Consensus, Bretton Woods II

Manmohan Singh, currently PM of India, showed that the challenges caused by imbalances can be an opportunity when he led his country's successful economic reform programme after the 1991 crisis.

The Bretton Woods system came to an end between 1971 and 1973. There were attempts to repair the system of fixed exchanged rates over the next few years, but these were soon abandoned, as were determined efforts for the US to avoid BOP imbalances. Part of the reason was displacement of the previous dominant economic paradigm - Keynesianism - by the Washington Consensus, with economists and economics writers such as Murray Rothbard and Milton Friedman [37] arguing that there was no great need to be concerned about BOP issues. According to Rothbard:

Fortunately, the absurdity of worrying about the balance of payments is made evident by focusing on inter-state trade. For nobody worries about the balance of payments between New York and New Jersey, or, for that matter, between Manhattan and Brooklyn, because there are no customs officials recording such trade and such balances.[38]

In the immediate aftermath of the Bretton Woods collapse, countries generally tried to retain some control over their exchange rate by independently managing it, or by intervening in the Forex as part of a regional bloc, such as the Snake which formed in 1971. [19] The Snake was a group of European countries who tried to retain stable rates at least with each other; the group eventually evolved into the ERM by 1979. From the mid 1970s however, and especially in the 1980s and early 90s, many other countries followed the US in liberalising controls on both their capital and current accounts, in adopting a somewhat relaxed attitude to their balance of payments and in allowing the value of their currency to float relatively freely with exchange rates determined mostly by the market.[19] [33] Developing countries who chose to allow the market to determine their exchange rates would often develop sizeable current account deficits, financed by capital account inflows such as loans and investments, [39] though this often ended in crises when investors lost confidence. [33] [40] [41]

A turning point was the 1997 Asian Financial Crisis, where unsympathetic responses by western powers caused policy makers in emerging economies to re-assess the wisdom of relying on the free market; by 1999 the developing world as a whole stopped running current account deficits [42] while the US current account deficit began to rise sharply. [43] This new form of imbalance began to develop in part due to the practice of emerging economies (principally China) in pegging their currency against the dollar, rather than allowing the value to freely float. The resulting state of affairs has been referred to as Bretton Woods II. [8] According to economics writer Martin Wolf, in the eight years leading up to 2007, "three quarters of the foreign currency reserves accumulated since the beginning of time have been piled up". [44]

### 2009 and later: Post Washington Consensus

Speaking after the 2009 G-20 London summit , Gordon Brown announced "the Washington Consensus is over".[45] There is now broad agreement that large imbalances between different countries do matter; for example mainstream US economist C. Fred Bergsten has argued the US deficit and the associated large inbound capital flows into the US was one of the causes of the financial crisis of 2007–2010.[18] In 2007 when the crises began, the total BOP imbalance was \$1680bn. On the credit side, the biggest current account surplus was China with approx. \$362Bn, followed by Japan at \$213Bn and Germany at £185BN, with oil producing countries such as Saudi Arabia also having large surpluses. On the debit side, the US had the biggest current account deficit at over £700Bn, with the UK, Spain and Australia together accounting for close to a further \$300Bn. [44] While there have been warnings of future cuts in public spending, deficit countries on the whole did not make these in 2009, in fact the opposite happened with increased public spending contributing to recovery as part of global efforts to increase demand . [46] The emphases has instead been on the surplus countries, with the IMF, EU and nations such as the US, Brazil and Russia asking them to assist with the adjustments to correct the imbalances. [47] [48]

Economists such as Gregor Irwin and Philip R. Lane have suggested that increased use of pooled reserves could help emerging economies not to require such large reserves and thus have less need for current account surpluses. [49] Writing for the FT in Jan 2009, Gillian Tett says she exspects to see policy makers becoming increasingly concerned about exchange rates over the comming year. [50] Japan has allowed her currency to appreciate, but has only limited scope to contribute to the rebalancing efforts thanks in part to her ageing population. The Euro used by Germany is allowed to float fairly freely in value, however further appreciation would be problematic for other members of the currency union such as Spain, Greece and Ireland who run large deficits. Therefore Germany has instead been asked to contribute by further promoting internal demand, but this hasnt been welcomed by German officials. [47] China has been requested to allow the Renminbi to appreciate but has so far refused, the position expressed by her premier Wen Jiabao being that by keeping the value of the Renimbi stable against the dollar China has been helping the global recovery, and that calls to let her currency rise in value have been motivated by a desire to hold back China's development. [48] After China reported favourable results for her Decmber 2009 exports however, the Financial Times reported that analysts are optimistic that China will allow some appreciation of her currency around mid 2010. [51] 2008 and 2009 did see some reduction in imbalances, but early indications towards the end of 2009 were that major imbalances such as the US current account deficit are set to begin increasing again, leaving the prospects for their resolution uncertain. [7] [52]

## References

1. ^ a b c d Sloman, John (2004). Economics. Penguin. pp. 516, 517, 555-559.
2. ^ a b c Orlin, Crabbe (1996). International Financial Markets (3rd ed.). Prentice Hall. pp. 430-442. ISBN 0132069881.
3. ^ Colin Danby. "Balance of Payments: Categories and Definitions". University of Washington. Retrieved 2009-12-11.
4. ^ IMF Balance of Payments Manual, Chapter 2 "Overview of the Framework", Paragraph 2.15 [1]
5. ^ The IMF Capital account records mainly capital transfers, the amounts involved are usually very small compared to other BOP transactions, except in rare cases where a country is the beneficiary of substantial debt forgiveness.
6. ^ Though there is difference of opinion on how to resolve the issue with the major surplus countries apart from Japan resisting pressure to lower their own surpluses.
7. ^ a b Krishna Guha (2009-10-24). "Recovery takes an unclear path". The Financial Times. Retrieved 2010-01-10.
8. ^ a b Michael P. Dooley, David Folkerts-Landau, Peter Garber (February 2009). "Bretton Woods II Still Defines the International Monetary System". National Bureau of Economic Research.
9. ^ Richard Duncan (2008-01-31). "Buyers, not savers, caused America’s deficit". The Financial Times. Retrieved 2010-01-13.
10. ^ Martin Wolf (2009-11-04). "Private behaviour will shape our path to fiscal stability". The Financial Times. Retrieved 2010-01-13.
11. ^ "Governor Ben S. Bernanke, The Global Saving Glut and the U.S. Current Account Deficit". Federalreserve.gov. March 2005. Retrieved 2010-01-13.
12. ^ However individual states may choose to keep some of their reserves in the form of whatever currency is used by nations they buy most of their imports from.
13. ^ John Plender (2009-11-11). "Decline but no fall". The Financial Times. Retrieved 2010-01-19.
14. ^ Mainly gold, but also silver, platinum and palladium.
15. ^ Jamil Anderlini in Beijing (2009-03-23). "China calls for new reserve currency". Financial Times. Retrieved 2009-04-13.
16. ^ Zhou Xiaochuan (2009-03-23). "Reform the International Monetary System". People's Bank of China. Retrieved 2009-04-13.
17. ^ Geoff Dyer in Beijing (2009-08-24). "The dragon stirs". The Financial Times. Retrieved 2009-09-18.
18. ^ a b C. Fred Bergsten (Nov 2009). "The Dollar and the Deficits". Foreign Affairs. Retrieved 2009-12-15.
19. ^ a b c Roberts, Richard (1999). Inside International Finance. Orion. pp. 1-27. ISBN 0752820702.
20. ^ Scores of other text books old and new also give this definition, see for example International monetary relations: theory, history, and policy (1976) , p611 By Leland B. Yeager. The other two basic functions are to provide liquidity and to impart confidence. While during the Washington Consensus period less emphases was placed on the need for balance, in the main a requirement for correction was still accepted, though many argued that governments should leave such correction to the markets.
21. ^ Following the collaspe of the Bretton Woods system, rules based adjustment is mostly theorectical.
22. ^ a b Paul Davidson (2009). The Keynes Solution: The Path to Global Economic Prosperity. Palgrave Macmillan. p. 123-138. ISBN 978-0230619203.
23. ^ Though except in the early years of the Bretton Woods System when international markets were heavily constrained by capital controls, managing the exchange rate has often been problematic as the markets often want the currency to move in the opposite direction to governments. Developing countries in particular would often experience difficulties, though even advanced economies like Britain had issues, with Black Wednesday an example when she had insufficient reserves to counter the market.
24. ^ There are commonly used financial instruments that allow importers to pay with their domestic currency, and the reserve asset will often play an intermediary role, but ultimately exporters require paying in their own currency.
25. ^ In practice there is typically still a small degree of exchange rate flexibility due to the cost of shipping gold between nations.
26. ^ Though not problem free, see Paper from the Bank of Canada on current imbalances in context of international monetary system history
27. ^ Wolfgang Munchau (2009-06-07). "Down and out for the long term in Germany". The Financial Times. Retrieved 2010-01-10.
28. ^ Bertrand Benoit. "Berlin vote heralds big spending cuts". The Financial Times. Retrieved 2010-01-12.
29. ^ Ralph Atkins. "The Bundesbank and global imbalances". The Financial Times. Retrieved 2010-01-12.
30. ^ Martin Wolf. "The eurozones next decade will be tough". The Financial Times. Retrieved 2010-01-12.
31. ^ Reforming the worlds international money (pdf) (2008) by Paul Davidson
32. ^ With silver and other precious commodities sometimes also important, acting along with gold as part of a nations de facto reserve asset.
33. ^ a b c d e f g h i Helleiner, Eirc (2005). John Ravenhill. ed. Global Political Economy. p. 7-15, 154, 185, 198.
34. ^ Harold James. "The End of Globalization". Harvard University Press / google books. p. page 12. Retrieved 2009-03-17.
35. ^ Though some like Bismark viewed Great Britains promotion of free trade as a way to maintain her dominant position: FT article
36. ^ Carroll Quigley (1995). Tradegy and Hope. GSG & Associates, Inc. pp. 243, 263. ISBN 094500110X.
37. ^ e.g. in his influential Free to Choose TV series
38. ^ Protectionism and the Destruction of Prosperity, Murray Rothbard
39. ^ In the 70s and 80s a significant part of the capital flowing into developing countries was re-cycled petro dollars, the oil producing countries were among the few to have large surpluses but at that time the US wasn't issuing many bonds so the capital tended to flow to developing countries via the intermediary of western investment banks.
40. ^ Heakal, Reem. "Understanding Capital And Financial Accounts In The Balance Of Payments". Investopedia. Retrieved 2009-12-11.
41. ^ Eswar S. Prasad, Raghuram G. Rajan, and Arvind Subramanian (2007-04-16). "Foreign Capital and Economic Growth". Peterson Institute. Retrieved 2009-12-15.
42. ^ Wolf, Martin (2009). "3". Fixing Global Finance. pp. 39.
43. ^ U.S. Trade in Goods and Services - Balance of Payments 1960 thru 2008
44. ^ a b Martin Wolf (2008-10-08). "Asia's Revenge". The Financial Times. Retrieved 2010-01-10.
45. ^
46. ^ The public spending did not however make the imbalances worse as they were offset by reduced private sector demand and debt in the deficit countries.
47. ^ a b Chris Giles (2009-01-11). "Surplus nations urged by IMF to take up baton". The Financial Times. Retrieved 2010-01-10.
48. ^ a b Geoff Dyer. "Wen dismisses currency pressure". The Financial Times. Retrieved 2010-01-10.
49. ^ Philip R. Lane. "Global Imbalances and Global Governance". CEPR. Retrieved 2009-12-11.
50. ^ Gillian Tett (20010-01-28). "Calls for a new Bretton Woods not so mad". Financial Times. Retrieved 20010-01-29.
51. ^ Patti Waldmeir. "China's exports rise as economy picks up". The Financial Times. Retrieved 2010-01-10.
52. ^ Gideon Rachman. "Bankruptcy could be good for America". The Financial Times. Retrieved 2010-01-12.
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