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Disequilibrium In The Balance Of Payments

 Disequilibrium in the Balance of Payments

    Thus we came to know that the balance of payment account is prepared with the double entry system of book keeping. This tends to a very significant issue of how an excess or an insufficiency happens in the balance of payments or in other terms how disequilibrium takes place in the balance of payments. To understand this let us present the above example accommodating the balances into the external balances.

Illustration 62

With the above illustration present the external balances in the format applicable for balance of payment.

The external Balances in the Balance of Payments

Row No.

Balance Items

Difference of Balance Items
Amount in Million $

Excess or Insufficiency Amount in Million $

(A)

Balance of Trade (Rows 1 and 6 of the above tablet)

1,500 – 1,800

- 300

(B)

Balance of Services (Rows 2 and 7 of the above tablet)

750 – 150

- 600

(C)

Balance of Independent Transfer (Rows 3 and 8 of the above tablet)

150 – 240

- 90

(D)

Balance of Current Account (Rows (A), (B) and (C) of this tablet)

- 300 + 600 – 90

210

(E)

Balance of Capital Account (Rows 4 and 9 of the above tablet)

300 – 360

- 60

(F)

Balance of Official Reserve Account (Rows 5 and 10 of the above tablet)

300 – 450

- 150

(G)

Balance of Payments (Rows (D), (E) and (F) of this tablet)

3000 – 3000

0

Autonomous Transaction

    Autonomous transactions are those transactions that occur liberally of other items in the balance of payments. Therefore, these transactions occur for contentment that they provide or for the revenue that they capitulate. They occur in both the current and capital accounts.

  1. Current Account
    1. In this, autonomous entries integrate the selling abroad and importation of merchandise and services.
    1. Independent transfers or unilateral transfers are also incorporated under autonomous transactions though they are non-commercial transactions (as they do not incorporate in any mode, fetches about a balance in the balance of payment).
  1. Capital Account

    1. In this, autonomous entries integrate the long term movements of capital as they are commercial entries for the overt purpose of making revenue.

    2. Accommodating transactions are those entries that occur for the specific purpose of tallying the balance of payments from an accountant’s view point.

    3. They occur for balancing an insufficient or excess in the foreign account. They are not enthused by revenue.

    4. They incorporate short term movements of capital, monetary gold movements and changes in the overseas negotiation reserves. To ascertain whether the balance of payments is in symmetry or disequilibrium, only the autonomous entries are regarded.

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