Ch8.Balanceofpaymentsandinternationalindebtednessandinternationalfinancialmarket11.DisequilibriuminthemodelofinternationaltradeExternaldisequilibrium22.Thebalanceofpayment:currentandcapitalaccountTradeingoods:rawmaterialsandcapitalgoodsconsumergoods,Tradeinservice:transport,insuranceservicesastravelservice.Interest,dividendetc.,acountrywithexternalindebtednesshasreliedonforeignfactorsofproductionandhastopayforthefactorservicesrendered.Transfersitems:unilateraltransfers(aid)andgeneraltransfers.Currentaccountbalance:goods,serviceandtransfersconstituteit.Commonreferencetobalanceofpaymentsurplusordeficit(ispreciselyareferencetothecurrentaccountofthebalanceofpayments).3Internationaldealingsmaybeintheformoftransactionsinvolvingsecurities,sharesandbondsandmoney(bankdeposits)internationaltradeinmoneyandsecuritiesresultsincapitalmovements,whicharerecordedonthecapitalaccountofthebalanceofpayments.Currentaccountversuscapitalaccount

Ifthecurrentaccountofthebalanceofpaymentsshowasurplus,thenthecapitalaccountmustatthesametimeshowacorrespondingdeficit.Itmustshowachangeincurrencyreservesandininternationallending.Currencyreservesconsistoftheliquidclaimsofthecentralbankonothercountriesminustheforeignliabilitiesofthebank.Thecurrencyreservesincludethegoldreservesofthebank,Currentaccountsurplus(CA),publicandprivatenetborrowingabroad(B)andtheincreaseincurrencyreserves(detaL)

4BOP:Double-entrybook-keeping,currentaccountvs.capitalaccountCurrencyreceipts（貸）(Debit)（對本國旳支付＋）Currencyexpenditure（借）(Credit)(本國對外支付－）Tradeingoods12Services34transfers56CurrentaccountIncreaseinliabilitiesIncreaseinassetsDirectinvestment78Lending910Changeincurrencyreserves1112Capitalaccount

5AutonomousandaccommdatingitemsAsawhole,abalanceofpaymentsisalwaysinequilibrium,thereforeanydisequilibriumwillbeinoneofthesubtotals

6Thecrucialcharacteristicofautomomousitemsisthattheyresultfrom“independentbusinessmotives”,onassumptionthatprivatesectorcapitalimportsandexportsareautonomousLeft-handsideoftheequationsignautonomousitems.Andaccommodatingitemsontheright-handside.Automousandaccommodatingunderfloatingandfixedexchangerates.Floatingexchangerates:iftheauthoritiesdonotinterveneFixedexchangerates:theauthoritiesareunderanobligationtosecuretherateofexchange.Authoritieshavetocompensateforanydis-equilibriumcausedbytheautomoumousitems.Twotoolsareathands:loansorchangereserves.783.ThetransferproblemSavingandBOPGovernmentexpenditure,privateborrowingandBOP

crisesofLatinAmericacrisesofSA94.FactorsinfluncetheBOP105.Internationalcapitalmovements115.Internationalcapitalmovement5.1Astylizedprofile:astoreofindustrializingcountries125.2recentcapitalmovement131415165.3internationalindebtedness:aproblem?

positiveeffects(allagentsmaybenefitsfromindebtedness),samereflectedonlyintherealworldpriortoIWW.

lesspositiveeffects

in80sLatinAmericanLDCs.CaseofChileandBrazil

conclusion:Foreignindebtednesspresentsnoprobleminitselfbutmayturnouttobehighlyproblematiciflendersandborrowsdonotbehaverationallyorifconditionschangequiteunpredictably.175.4limitstoforeigndebt:asimplemodelcreditworthinessofthecountryaredeterminedbypoliticalandeconomicfactors.Politicalfactor:politicalstabilityEconomickeyfigures

InternationalliquidityInterestpaymentsrelativetoexportsExportsrelativetoGDPForeigndebt(D)relativetoGDP(Y):b=D/YAsustaineddeficitsimplemodelOnlyifthegrowthrateinGDPisabovetheaverageinterestrateinvolvedinthedebtservicewillasustaineddeficitbeconsistentwithanunchangeddebtburden186.ForeignexchangemarketMarketdescriptionextendandstructureProductofmarketSpot&futuremarketFunctionsofmarket

mediatorofpurchasingpower:fromonecurrencyareatoanther

creditorfacilities(internationaldepositesandlending,internationalbondsandstockmarketinvestmentandissuses)

reduceexchangerisk:exchangeforwardmarketprovidethatfunction

19Demandandsupplyofforeignexchange(spotmarket)

demandofmarketmotivesfordemandofforeigncurrencycanberevealedattheBOP.Import,carriagebyforeignvessels,tourism,OverseainvestmentIncreasingforeigncurrencyreserves

supplyofmarketExport,foreigntouristsspendingForeigninvestmentForeignerIncreasingtheirdomesticasstsandclaims

20Playersinthemarket21Quantityofforeign(USD)currencyRMB/USDSupplyofUSDDemandofUSDOP0Q0Demandandsupplyofforeigncurrency22Quantityofforeign(USD)currencyRMB/USDSupplyofUSDDemandofUSDOP0Q0ChangeofthedemandandsupplyofforeigncurrencyIfnoauthoritiesintervene:CA+B=0CA+Bp=0Q&A:factorscausethechangeofD&S23Fixedexchangerate,changeofthedemandandsupplyofforeigncurrency,authortity’sinterveneRMB/USDQuantityofUSDUpperinterventionlimitLowerinterventionlimitUpperinterventionlimitLowerinterventionlimitABCQ&A:whyinasystemoffixedexchangeratesappropriatesizeofforeignexchangereservesisrequried?247.ExchangeratesystemFloatingratesystemFixedratesystem

GoldstandardIMFsystem1944,BrettonWoodsConference Fixedratesystembutadjustable,DollarStandard:$USD35/oneounceofgold,parvaluedefinedinternsofgoldtoIMF,1%floating,changeratewhenafundamentaldisequilibriumisencountered IMF:creditfacilitiesforeachmember VietnamWar,1973fixedtofloating258.changenationalcompetitiveness8.1isitmeasurableforacountry’scompetitiveness?

8.1.1astandardizedbalanceofpaymentsAdeficitofBOPisoftenassociatedwithalowdegreeofcompetitivenessrelativetothatofothercountries.However,someofreasonsofchangeofitareunrelatedtocompetitiveness.SometimeBOPalsohavetrade-off.ShorttermLongtermFirmlevelIndustrylevelCountrylevel268.1.2marketsharechangesMarketshare:

incurrentprices,changeofpricecannotreflectcompetitiveness,quantitiesarenotshowed

fixedprices:qualityofproductaredifficultytobemeasured8.1.3priceandcostdevelopment(causeofcompetitiveness,CPP)Pricep