Balance of payments and international trade
The balance of payments is a statement that summarizes the economic transactions between Denmark and the rest of the world within a given period. The balance of payments can be split into three main accounts – current account, showing imports and exports of goods and services and income/expenses, capital account, typically showing special transactions of a one-off nature, and financial account, showing e.g. how a deficit/surplus on the current account is financed/spent. International trade in goods and services reflects Denmark’s trade with the rest of the world and is an important part of the current account of the balance of payments. Other items under the current account are compensation of employees, property income and other income as well as current transfers.
The balance of payments can be considered as a kind of accounting system that shows Denmark’s economic transactions in a given period. The balance of payments is based on the double-entry account system, where each transaction is specified on the revenue side (credit side) as well as on the expenditure side (debit side).
The balance of payments consist of three main accounts plus one special account, which is called errors and omissions. The three accounts are:
Current account includes transactions that have been completed during the accounting period, and which directly affect disposable income and accordingly the consumption of goods and services. Read more about the current account of the balance of payments.
Capital account includes some special transactions of a one-off nature.
Financial account concerns transactions that change the external financial assets and liabilities. The financial account shows net acquisition and disposal of financial assets and liabilities. Read more about financial account of the balance of payments.
Errors and omissions are calculated as the difference between the net transactions on the current account and capital account combined and the net transactions on the financial account, and thus it reflects errors and omissions in one of the three main accounts.
The balance of payments is included in the Sector Accounts of the National Accounts as S.2 rest of the world. In this way, the sum of the surplus (credit items minus debit items) on the current account and capital account, called Denmark’s net lending/net borrowing vis-à-vis the rest of the world, is identical with the net acquisition of foreign financial assets in the National Accounts.
International trade in goods and services is included in the current account of the balance of payments. The trade in goods is based on the international trade in goods statistics, though with a number of adjustments while incorporating it in the balance of payments. In general, the change of ownership principle (between a Danish and a foreign resident) is used, when the value of transactions is stated in the balance of payments, as opposed to the traditional international trade in goods statistics, which is based mainly on the border crossing principle ( goods crossing the Danish border). This means that goods do not physically have to cross the Danish border to be included in the trade in goods of the balance of payments, but only a change in ownership of goods between a Danish and a foreign resident. The other way round, goods may cross the Danish border without changing owner. In that case, the goods are included in the traditional statistics of international trade in goods, but not in the balance of payments statement of trade in goods. The services part of the current account of balance of payments is based directly on the international trade in services statistics. Read more about Imports and exports of goods and services, including the distinction between change of ownership and border crossing.
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