Balance of payments
The balance of payments in a country demonstrate the records of all the economic transactions that take place between the residents in a particular country and those living in other parts of the world for a certain period, mostly over an year. Individual institutions, government entities and organizations make various transactions to enhance economic growth and development. The balance of payment is signified by the compilation of the detectable and non-detectable transactions from various enterprises. The fluctuations in the stability of currency depend on various economic and financial aspects. The effective establishment of the balance of payment of a particular country determines its operations in international trade and in foreign exchange. Financial transfer, benefits accrued with exportation and importation of goods and services are some of the contributing aspects that develops a preferable financial transaction in local and international markets.
The balance of payments records offer a summary of all transactions in a specific period and they are summed up using the currency of the concerned country. The exportation of products in international market and the availability of loans from different international financial facilities improve financial records and surplus of a particular nation. On the other hand, deficit is realized by individual states and government result from foreign investment practices and importation of goods and services. When calculations are done, they should add up to zero without a deficit or surplus. Sometimes there are possible imbalances in the capital account and current account with exclusion of the central bank’s account. A country with more surplus items accumulates wealth when those with deficit items are indebted to others. Sometimes the imbalances are caused by fluctuating exchange rates, competition in business and fiscal deficit in the government.
Petrodollar Recycling
There are various nations that enhance the production of oil and related products world wide. The major stake holders are members of the oil organization called OPEC. The effect of Petrodollar recycling involves the establishment of abnormal profits from the sale and distribution of oil. The surplus money gained is used by the nations to buy goods and services from foreign countries and some is saved in the form of foreign assets and investments in other countries. The fluctuations in the stability of currency depend on various economic and financial aspects. The effective establishment of the balance of payment of a particular country determines its operations in international trade and in foreign exchange.
The recycling can take place through the absorption channel. This is where the petrodollars are used to back domestic investment and consumption and thus the demand for the importation of goods and services is increased. Recycling can also occur through the capital account channel. The hoarding of foreign assts by the various petrodollars results in realization of outflow of capital account. The surplus and realization of abnormal profits result in the facilitation of loans for the various financial institution. IMF is one of the benefactors of the abnormal profits gained by the oil producing companies. The assets are in the hands of the central bank and are part of the international reserves. Under petrodollar recycling all the records are calculated in dollars. Petrodollar recycling nations used the surplus to solve the problems of nations that suffered from trade imbalances due to the rising oil prices under the Oil Facility, a lending facility under the IMF.