Economic Goal 4:
External Stability
Balance of Payments
Balance of Payments
The balance of payments account is an
annual statistical record of the money
value of both current, and capital and
financial transactions between Australia
and the rest of the world.
 Money received by Australians is
recorded as a credit
 Money paid by us to overseas countries is
recorded as a debit.

Balance of Payments
The balance of payments is an accounting
record of the money value of different
types of transactions between Australia
and the rest of the world.
 Money received by Australians is
recorded as a credit
 Money paid by us to overseas countries is
recorded as a debit.

The Current Account
The current account records transactions
between Australia and the rest of the
world involving exports and imports of
goods and services, income and transfers.
 A current account deficit occurs when the
total value of current payments (debits)
for goods, services, incomes and current
transfers exceeds the total value of
receipts (credits)
 This is typically the situation for
Australia.

Sections in the Current Account
1.Net Goods (aka merchandise trade): records
the value of credits for goods exported
overseas such as minerals, wool, beef minus
the value of debits for goods imported from
overseas such as oil, electronics, machinery.
 Net goods = Goods credits – Goods debits
Sections in the Current Account
2. Net Services: records the value of credits for
services exported overseas such as overseas
tourists travelling to Aust, overseas students
studying in Aust, financial, transportation
minus the value of debits for services
imported from overseas such as Australians
travelling o/s, Australians studying o/s
 Net service= Service credits – Service debits
Sections in the Current Account
3. Net Income: records the value of credits for
income earned from o/s such as interest
received on money lent, dividends received
from o/s shares, wages earned minus the
value of debits for income paid o/s such as
interest paid on foreign debt, dividends paid to
o/s shareholders, wages paid to Australians
living o/s
 Net income = Income credits – Income debits
Sections in the Current Account
4. Net Current transfers: records the one-way
movement between Australian and other
countries of resources including: gifts, taxes,
pensions and foreign aid.
 Net current transfers = current transfer credits
– current transfer debits
Balance on Current Account
The balance on the current account = net
goods + net services + net income + net
current transfers.
 If the balance on the current account is a
negative number we have a current account
deficit
 If the balance on the current account is a
positive number we have a current account
surplus

Capital and Financial Accounts
The balance on the capital and financial accounts
are made up to two parts:
1. Balance on Capital account: records the
credits minus the debits of movements of
capital transfers including ownership of
copyrights, patents and trademarks and
movement of bank account money of
immigrants.
2. Balance on financial account: records the
credits minus the debits for transactions
involving the movements of money capital or
investment, as well as the dealings of the
Reserve Bank of Australia.

Financial Account

There are three main types of investments
recorded in the financial account:
◦ Direct investment: involves the purchase of
shares of >10%
◦ Portfolio investment: involves the purchase of
shares of < 10%
◦ Other investment: involves loans and deposits

The financial account also includes Net
Reserve Assets which involves RBA and
government transactions involving foreign
currencies and gold