What are the features of Balance of Payments in international trade ?


Balance of payments is a systematic record of all economic transactions. Visible as well as invisible, in a period, between one country and the rest of the world. It shows the relationship between one country’s total payments to all other countries and its total receipts from them. Balance of payments thus is statement of payments and receipts on international transactions.

Payments and receipts on international account are of three lands:

(a) the visible balance of trade;


(b) the invisible items; and

(c) capital transfers.

Kindleberger defines balance of payments as “a systematic record of all economic transactions between the residents of the reporting country and the residents of foreign countries during a given period of time.”

In the words of Benham, “Balance of payments of a country is a record of the monetary transactions over a period with the rest of the world.”


Features of Balance of Payments

Balance of Payments has the following features:

(i) It is a systematic record of all economic transactions between one country and the rest of the world.

(ii) It includes all transactions, visible as well as invisible.


(iii) It relates to a period of time. Generally, it is an annual statement.

(iv) It adopts a double-entry book-keeping system. It has two sides: credit side and debit side. Receipts are recorded on the credit side and payments on the debit side.

(v) When receipts are equal to payments, the balance of payments is in equilibrium; when receipts are greater than payments, there is surplus in the balance of payments; when payments are greater than receipts, there is deficit in the balance of payments.

(vi) In the accounting sense, total credits and debits in the balance of payments statement always balance each other.


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