ABSTRACT
The basic tenet of Chapter 12 rests on the idea that the BoP is a double-entry accounting device so it will always balance, i.e. BoP = 0 at all time. But we also hear about “imbalances” in the balance of payments, and this chapter clarifies what such imbalances may be. For instance, we hear about chronic trade deficits and there seems to be a popular notion that such deficits cannot be sustained indefinitely. These imbalances refer directly to subcomponents of the BoP – imbalances related to trade, to capital flows, and to central bank interventions.
