What Creates a Current Account Balance

What Creates a Current Account Balance The Economics Dictionary defines the balance of the Current Account as follows: The current account balance is the difference between a countrys savings and its investment. [If the current account balance is] positive, it measures the portion of a countrys saving invested abroad; if negative, the portion of domestic investment financed by foreigners savings. The current account balance is defined by the sum of the value of imports of goods and services plus net returns on investments abroad, minus the value of exports of goods and services, where all these elements are measured in the domestic currency. In laymans terms, when a countrys current account balance is positive (also known as running a surplus), the country is a net lender to the rest of the world. When a countrys current account balance is negative (also known as running a deficit), the country is a net borrower from the rest of the world. The U.S. current account balance has been in a deficit position since 1992 (see chart), and that deficit has been growing. Thus the United States and its citizens have been borrowing heavily from other countries such as China. This has alarmed some, though others have argued that it means eventually the Chinese government will be forced to raise the value of its currency, the yuan, which will help alleviate the deficit. For the relationship between currencies and trade, see A Beginners Guide to Purchasing Power Parity (PPP). U.S. Current Account Balance 1991-2004 (in Millions) 1991: 2,8981992: -50,0781993: -84,8061994: -121,6121995: -113,6701996: -124,8941997: -140,9061998: -214,0641999: -300,0602000: -415,9992001: -389,4562002: -475,2112003: -519,6792004: -668,074Source: Bureau of Economic Analysis Current Account References Articles on the Current AccountDefinition of the Current Account