Resident and Non-resident, Formation of the Balance of Payments...

Resident and non-resident

Since the balance of payments is the reflection of the total of transactions between domestic and foreign residents, it is necessary to determine the concepts of "resident" and non-resident .

By residents means:

• individuals and legal entities residing permanently in a given country;

• Firms and organizations that are not legal entities established in accordance with the laws of the country and located on its territory;

• diplomatic and other representations outside the country;

• branches and representative offices of residents located outside the country.

By non-residents means:

• individuals who permanently reside outside the country, including those temporarily residing in a given country;

• legal entities created in accordance with the laws of foreign countries and located outside the country;

• firms and organizations that are not legal entities established in accordance with the laws of their countries;

• diplomatic and other representations, as well as international organizations and branches;

• Foreign branches in a given country.

Formation of the Balance of Payments Institute

The theory and practice of the balance of payments has evolved over the centuries. The first attempts to compile it belong to the Middle Ages, and the term "Balance of Payments" introduced J. Stewart, a representative of late mercantilism of the 18th century, into scientific and practical work, seeing the source of the country's wealth in the active trade balance. The first research work in the field of international comparisons began to be carried out in the apparatus of the League of Nations, which required the unification of the balance of payments methodology. This work was thoroughly and diversely developed within the framework of UN agencies, as well as the IMF. At the present time, the fifth edition of the UN Standard Scheme 1993, which is used by the countries of the world in the compilation of balance of payments, is in force.

Basic Principle

The double-entry principle is used in the balance of payments: each transaction has two sides - debit and credit. In accordance with this accounting system, the total amount on the debit must always equal the total amount on the loan. The balance of payments is used by economists as a mechanism for conducting assessments and an analysis tool. Accordingly, there should be clarity in the economic terminology used to describe the two sides of transactions in the balance of payments. This description looks approximately as shown in Table. 5.1.

Table 5.1

Billing Balance

Arrival (receipts)


Money sources

Export of goods and services. Capital inflows

Ways of using money

Import of goods and services. Capital assets

Parish operations include exports of goods and services and capital inflows and constitute sources of cash. Expense operations include the import of goods and services and capital outflows and constitute ways to use cash.

Using Balance of Payments Information

A lot of banks, other financial institutions, companies and government services work with the data in the balance of payments and use them for various purposes. The payment balance data is used for the following purposes:

• country credit ratings;

• measuring the economic cycle in analyzing the trends of the country's economic development;

• making forecasts of the impact on exchange rates;

• Forecasting government policy;

• A better understanding of risk analysis in the country;

• assess the state of the economy of the state.

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