Remaining items in the balance of payments:

The balance-of-payments accounts are completed by  the entry of: other minor items that can be identified  but do not fall comfortably into one  of the standard categories; errors and omissions, which reflect transactions that have not been recorded for various reasons and  so cannot be entered under a standard heading, but which we know must appear since the full balance-of-payments account must sum to  zero; and changes  in  official reserves and  in  official liabilities that are part of the reserves of other countries.

Errors and omissions (or the balancing items) reflect the difficulties  involved in recording accurately,  if at all, a wide variety of transactions  that occur within a given period (usually 12 months). In some cases there may be such a large number of transactions that  a sample is taken rather than recording each transaction, with the inevitable errors that occur when samples are used.  In other cases, problems may arise when one or other of the parts of a  transaction takes more than one year. For example, with a large export contract covering several years  some payment may be received by  the exporter  before  any deliveries are made. But the last payment will not be made until the contract has been completed. Dishonesty may also play a part, as when goods are smuggled, in which case the merchandise side of the transaction is unreported although payment will be made somehow and will be reflected somewhere  in the accounts. Similarly, the desire to avoid taxes may lead to under-reporting of some items in order to reduce tax liabilities.

Finally, there are changes  in  the  reserves of  the country whose balance of payments we are considering, and changes in that part of the reserves of other countries  that is  held  in  the country concerned. Reserves are held in three forms: in  foreign currency, usually but  not  always the US dollar, as gold,  and  as Special Drawing Rights (SDRs) borrowed fiom the IMF. Note that reserves do not have to be held within the country.  Indeed most countries hold a proportion of their reserves in accounts with foreign central banks.

The changes  in the country's reserves must of course reflect t6e net value of all the other  recorded items in  the balance of payments. These changes in reserves will of course be recorded accurately, and  it  is the discrepancy between the changes in reserves and the net value of  the other recorded items that allows us to identifjr the errors and omissions.