Settlements balance involves transactions between government

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Reference no: EM13888638

Note that the current and capital accounts in the U.S. Balance of payments (BOP) are mostly private transactions while the official settlements balance involves transactions between governments. If trade with China causes more imports than exports in the balance of merchandise trade account and the current account. Then there must be more debits than credits in these two subsets of BOB accounts. Because we didn't pay for our imports with sufficient exports, foreigners must loan us money to finance our over consumption. If the purchases of U.S. stocks and bonds by private sector foreigners results in a net capital inflow in the capital account that is less than our current account deficit, then what can the Chinese government do to make up for the difference in the official settlements balance?

Reference no: EM13888638

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