International Finance Theory and Policy
by Steven M. Suranovic

Finance 5-7 (1997)

US Balance of Payments Statistics - 1997

One of the most informative ways to learn about a country's balance of payments statistics is to take a careful look at them for a particular year. We shall do that here for the US balance of payments statistics for 1997. Below we present an abbreviated version of the US BoP statistics.

The line numbers refer to the line item on the complete BEA report. All debit entries have a minus sign and are colored red. All credit entries have a plus sign and are colored black. A brief description of each line item is provided below where all values are rounded downward for easy reference with the table. To see the entries for every line or for more recent statistics see the US Department of Commerce, Bureau of Economic Analysis website located at http://www.bea.doc.gov/.

US Balance of Payments - 1997
(millions of $, seasonally adjusted)
(credits +, debits -)
Line # Category Value
1 Exports of goods, services and income +1,179,380
2 Goods + 679,325
3 Services +258,268
11 Income receipts on US assets abroad +241,787
12 Direct investment receipts +109,407
13 Other private receipts +128,845
14 US government receipts +3,535
15 Imports of goods, services, and income -1,294,904
16 Goods -877,279
17 Services -170,520
25 Income payments on foreign assets in the US -247,105
26 Direct investment payments -45,674
27 Other private payments -113,959
28 US government payments -87,472
29 Unilateral transfers -39,691
33 US assets abroad (increase/capital outflow (-) -478,502
34 US official reserve assets -1,010
39 US government assets 174
43 US private assets -477,666
44 Direct investment -121,843
45 Foreign securities -87,981
46 US claims reported by US non-banks -120,403
47 US claims reported by US banks -147,439
48 Foreign assets in the US (increase/capital inflow (+)) +733,441
49 Foreign official assets in US +15,817
56 Other foreign assets in US +717,624
57 Direct investment +93,449
58 US treasury securities +146,710

59

US currency +24,782
60 US securities other than t-bills +196,845
61 US liabilities reported by US non-banks +107,779
62 US liabilities reported by US banks +148,059
64 Statistical Discrepancy (sum of above with sign reversed) -99,724

Below we provide a brief description of each line item that appears on this abbreviated balance of payments record

Current Account

Line 1, $1.1 trillion, shows the value of all US exports of goods, services and income. This value is equal to the sum of lines 2, 3 and 11.

Line 2, $679 billion, shows exports of merchandise goods. This includes any physical items that leave the country.

Line 3, $258 billion, shows exports of services to foreigners. This category includes travel services, passenger fares, royalties, license fees, insurance legal services and other private services.

Line 11, $241 billion, shows income receipts on US assets abroad. This represents profits and interest earned by US residents on investments in other countries. In one sense these are payments for services rendered where the services include entrepreneurial services in the case of foreign operated factories, or money services in the case of interest and dividend payments on foreign securities. This line is included in a measure of gross national product (GNP) since this income is accruing to US factors of production. However, the line is excluded from a measure of gross domestic product (GDP) since production did not take place within the borders of the country. Income receipts are divided into three sub-categories; foreign direct investment, other private receipts and US government receipts.

Line 12, $109 billion, shows direct investment receipts. This represents profit earned by US companies on foreign direct investment, where FDI is defined as a greater than 10% ownership share in a foreign company. Note that this is not new investments, but rather, is the profit and dividends earned on previous investments.

Line 13, $128 billion, shows other private receipts. This category includes interest and profit earned by individuals, businesses, investment companies, mutual funds, pension plans, etc. In effect all private investment income that accrue on investments worth less than 10% of a company would be included here.

Line 14, $3 billion, shows US government income receipts. This refers to interest and other income earned by government investments abroad. Notice that this item is very small compared to the other two income categories.

Line 15, $1.3 trillion, records imports of goods services and income. This value is equal to the sum of lines 16, 17 and 25.

Line 16, $877 billion, shows imports of merchandise goods. Notice that goods imports makes up about two-thirds of total imports.

Line 17, $170 billion, shows imports of services such as travel services, passenger fares, insurance etc.

Line 25, $247 billion, shows income payments on foreign assets in the US. This corresponds to income earned by foreigners who operate companies in the US or income earned on other US based assets held by foreigners. This entry is further divided into three components; direct investment, other private payments, and US government payments.

Line 26, $45 billion, records direct investment by foreigners in the US. This represents profit earned on foreign direct investment by foreign residents companies, where FDI is defined as a greater than 10% ownership share in a US company. Note that this is not new investments, but rather, is the profit and dividends earned on previous investments.

Line 27, $114 billion, reports other private payments. This category includes interest and profit earned by individuals, businesses, investment companies, mutual funds, pension plans, etc. In effect all private investment income that accrue on investments worth less than 10% of a company would be included here.

Line 28, $87 billion, records payments made by the US government to foreigners. This item represents mostly interest payments on US treasury bills owned by foreigners.

Line 29, $39 billion, records net unilateral transfers. These transfers refer to governments grants to foreign nations, government pension payments, and private remittances to family and friends abroad. A debit entry here means that the net transfers are outbound. That is, more transfers are made from the US to individuals abroad than are made in the reverse direction.

Capital Account

Line 33, $478 billion, shows the value of purchases of foreign assets by US residents, hence it is referred to as a capital outflow. The line is the sum of US official reserve assets (line 34), US government assets (line 39), and US private assets (line 43).

Line 34, $1 billion, represents net US federal reserve transactions. This item is also called official reserve transactions. Any purchases or sales of foreign currency in a foreign exchange intervention by the central bank would be recorded here. Since the item is a debit entry, it means that the US central bank made net purchases of foreign assets (currencies) in 1997.

It is worth noting that this line is more important for a country maintaining a fixed exchange rate. To maintain a credible fixed exchange rate, central banks must periodically participate in the foreign exchange market. This line measures the extent of that participation and is sometimes referred to as the "balance of payments" in a fixed exchange rate system.

Line 39, $174 million, represents net purchases of assets by the US government, though not by the Federal Reserve. The line has a small net credit entry which probably represents a net redemption of previously owned foreign assets.

Line 43, $477 billion, shows private purchases of foreign assets by US residents. It is the primary component of total US assets abroad. The item is composed of direct investment (line 44), Foreign securities (line 45), US claims reported by US non-banks (line 46), and US claims reported by US banks (line 47).

Line 44, $121 billion, shows direct investment by US residents abroad. It would include purchases of factories, stocks etc. by US businesses and affiliates in foreign countries as long as there is a controlling interest in excess of 10% voting share.

Line 45, $87 billion, shows purchases of foreign stocks and bonds by US individuals and businesses when there is no controlling interest in the foreign company. Most purchases by US mutual funds, pension funds and insurance companies would be classified here.

Line 46, $120 billion, shows US resident purchases of foreign assets reported by non-banks.

Line 47, $147 billion, reports US resident purchases of foreign assets reported by US banks. This may include items like foreign currency denominated demand deposits held by US businesses and individuals in US banks.

Line 48, $733 billion, shows the sum total of foreign assets in the US. This item refers to all purchases of US assets by foreign residents, thus, it is listed as a capital inflow. This line is composed of the sum of foreign official assets in the US (line 49), and other foreign assets in the US (line 56).

Line 49, $15 billion, refers to purchases of US assets by foreign governments or foreign central banks.

Line 56, $717 billion, refers to all other foreign assets purchases of US assets and is the main component of capital inflows. It is composed of direct investment (line 57), US treasury securities (line 58), US currency (line 59), US securities other than T-bills (line 60), US liabilities reported by US non-banks (line 61), and US liabilities reported by US banks (line 62).

Line 57, $93 billion, refers to purchases of US factories and stocks when there is a greater than 10% ownership share.

Line 58, $146 billion, shows total purchases of US treasury bills by foreigners. This corresponds to foreign loans to the US government.

Line 59, $24 billion, represents US currency that has been transported abroad and is held by foreigners. Because of the expectation that the US dollar will remain stable in value, it is often held by residents in inflationary countries to prevent the deterioration of purchasing power. It is estimated that over $200 billion of US currency circulates abroad and is used in exchange for foreign goods and services. This value represents only the additional amount that flowed abroad in 1997.

Line 60, $196 billion, shows non- US treasury bill and non-direct investment purchases of stocks and bonds by foreigners.

Line 61, $107 billion, shows deposits and purchases of US assets by foreigners reported by US non-banks.

Line 62, $148 billion, reports deposits and purchases of US assets by foreigners reported by US banks. Thus is a foreign resident opens a checking account in a US bank, denominated in US dollars, that value would be recorded here.

Line 64, $99 billion, represents the statistical discrepancy. It is the sum of all the above items with the sign reversed. It is included to satisfy the accounting requirement that all debit entries be balanced by credit entries of equal value. Thus, when the statistical discrepancy is included, the balance on the complete balance of payments is zero.

International Finance Theory and Policy - Chapter 5-7: Last Updated on 8/20/98

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