Why does the balance of payments balance?
Keeping this in view, why do balance of payments always balance?
Only if the value of exports is equal to the value of imports, the balance of trade is said to be in equilibrium. But the balance of payments always balances because every transaction must be settled. Hence total debits must be equal to the total credits.
Subsequently, question is, what does the balance of payments show? A country's balance of payments tells you whether it saves enough to pay for its imports. A balance of payments deficit means the country imports more goods, services and capital than it exports. It must borrow from other countries to pay for its imports.
Subsequently, one may also ask, why is the balance of payments Important?
Importance of Balance of Payments. As pointed out above, Balance of Payments is a very important record of financial transactions and status of any nation and its economy. It highlights the direction of economic growth or otherwise of any country and is a ground on which many important policy decisions are based.
What is balance of payments stability?
Balance of payments stability refers to a sustainable or limited current account deficit/surplus. ( i.e. avoid very high deficit/surplus)