Question

What is the answer to the question Calculate the U.S. current account balance (CAB) and its official settlements balance? (what about statisical discrepancies ?

Answer 1

About current account balance

The current account of the balance of payments includes a country's key activity, such as capital markets and services. CAB will tell whether a country is in a surplus or deficit. There are four major components of a current account, including goods, services, income, and current transfers.

What Is the Current Account Balance (CAB)?

The balance of payments (BOP) is the place where countries record their monetary transactions with the rest of the world. Examining the current account balance (CAB) of a country's BOP can provide a good idea of its economic activity. It includes activity around a country's industries, capital market, services, and the money entering the country from other governments or through remittances.

Current account formula---

The current account formula of the Balance of Payment measures the import and export of goods and services and is calculated as the sum of the trade balance, net income, and current transfers.

The trade balance is the difference between countries’ imports and exports and is the biggest component of the current account. A country always tries to have more export than imports. For the current account to be positive it is important to have a positive trade balance.

Current Account Equation is given below:

Current Account Formula = (X-M) + NI + NT

Calculation of U.S.current account balance-

Let us try to understand how to calculate current accounts with the help of an example. For calculating current accounts we need to assume how much is the exports for goods and services in a country, similarly w,e need to assume how much is the imports for goods and services in a country. This will let us calculate the net trade balance of the country which is the difference between exports and imports of the country. Also w,e need to assume how much the income from the investments made in a foreign country is. Current accounts also include the current transfers mainly in the form of government transfer in a country. The chart below represents the parts of a current account and also the calculation for the current account formula.

С А 1 Current Account ($mn) 2 Merchandise Exported 3 Merchandise Imported 4 Balance of Merchandise Trade 5 Services Exported 6 Services Imported 7 Balance of Services 8 Employee Compensation Income from Investment in 9 Foreign Country 10 Government Transfer 11 Other Transfer 12 B Values 350 -175 175 95 -120 -25 65 140 -240 -60

About official settlement balance ---

Official Settlements Balance reckoned an increase in non-central-bank foreign holdings of short-term dollar assets as an inflow of short-term capital into the United States; similarly an increase in U.S. resident holdings of short-term foreign assets was an outflow of short-term capital.

Understanding Official Settlement Accounts

Official settlement accounts are used in international balance of payments accounting, and represent the current account and the capital account of central banks. The current account keeps a record of a country's imports and exports of goods, services, income and transfers, and whether the country is a net creditor or net debtor. The capital account records the change in foreign and domestic investments, government borrowing and private sector borrowing. When there is either a balance of payments deficit or surplus, inflows of reserve assets or outflows of reserve assets bring the ledger back into balance. This is recorded in the official settlement account

​​​​​​​About statistical discrepamcy----The statistical discrepancy is the difference between net acquisition of financial assets and net incurrence of liabilities in the financial account (including financial derivatives) less the difference between total credits and total debits recorded in the current and capital accounts.