17-05-11
Today’s menu:
Canada’s
Balance of
Payments
i) Understand the components of our balance of
payments.
ii) Differentiate between a trade surplus and a trade
deficit.
iii) Differentiate between the current and capital
accounts
iv) Differentiate between balance of trade and
balance of payments
Balance of Payments
The balance of payments is a comprehensive statement of a
country’s economic transactions with the rest of the world for a
given period of time - normally a quarter or a year. It is
composed of the Current account, the Capital account, and
the Official Settlements account.
The Current Account measures transactions associated with
trade in goods and services, investment income (i.e. dividends
and interest), and transfers (i.e. people sending money to
relatives).
A word of caution…
Note: The “balance of payments” should not be
confused with the “balance of trade” - which is a
narrower concept that measures only trade in goods and
services.
Video
The Capital Account measures financial flows related to the
purchase of productive capital, such as real estate or direct
investment activities.
The Official Settlements Account records the net change in the
government’s holdings of foreign currency.
Balance of Trade
Balance of Trade: The exchange of payments
between nations resulting exclusively from the
importing and exporting of goods and services. That
portion of the current account associated with trade on
goods and services.
Did you know?
In 1998, approximately 84% of Canadian
exports went to the United States, while
about 77% of our imports came from the
United States.
Trade Surplus: The excess of exports over imports.
Trade Deficit: The excess of imports over exports.
By 2014, approximately 77% of
Canadian exports went to the United
States, and only about 52% of our
imports came from the United States.
(10% of our imports came from China.)
1
17-05-11
2004
Current Account
Canada's balance of international payments
(Cur r e nt account)
2000
Inflows
Total r e ce ipts
Goods and services
Goods
514,219
515,836
499,388
538,533
481,383
477,694
459,974
492,618
429,372
420,657
413,795
400,010
430,279
59,718
60,725
63,899
59,964
62,338
15,997
16,414
16,747
14,746
16,557
11,196
10,574
11,115
10,285
11,857
32,525
33,737
36,037
34,933
33,924
36,755
25,866
31,185
32,700
38,897
15,090
6,377
13,624
16,455
22,025
7,189
7,960
9,628
9,321
14,476
11,529
7,934
6,923
6,116
6,970
6,957
6,714
7,019
502,692
489,216
493,171
475,570
504,710
427,836
418,612
427,382
412,688
436,481
362,337
350,682
356,581
341,833
362,952
65,500
67,930
70,801
70,855
73,529
18,444
18,634
18,333
18,608
20,703
13,916
13,868
14,122
14,225
15,774
33,140
35,428
38,347
38,022
37,052
69,863
65,231
59,839
56,443
61,335
24,477
22,263
20,670
20,884
26,766
29,838
30,585
30,466
28,755
27,344
15,548
12,383
8,702
6,804
4,992
5,373
5,951
6,440
6,894
29,269
25,003
22,664
23,818
33,824
61,254
62,770
50,312
47,287
56,137
67,036
69,975
57,214
58,177
67,328
-5,782
-7,204
-6,903
-10,891
-11,191
-2,447
-2,220
-1,586
-3,862
-2,719
-3,294
-3,007
-3,940
-615
-1,691
-2,310
-3,089
-3,127
-33,109
-39,365
-28,653
-23,743
-22,438
-9,388
-15,886
-7,046
-4,429
-4,741
-22,649
-22,625
-20,838
-19,433
-18,186
Travel
Transportation
Other services
Investment income
Direct investments
Portf olio investments
Other investments
Transf ers
Outflows
Total paym e nts
Goods and services
Goods
Services
Transportation
Other services
Investment income
Direct investments
Portf olio investments
Other investments
Transf ers
Net
Total balance
Goods and services
Goods
•  Transfers: immigrants funds, inheritances, official
contributions, aid, etc.
Services
Travel
Transportation
Other services
Investment income
Direct investments
Portf olio investments
Other investments
Transf ers
Total receipts
Goods and services
Goods
Services
Travel
Transportation
Other services
Primary income
Compensation of employees
Investment income
Direct investments
Portfolio investments
Other investments
Secondary income
Private transfers
Government transfers
Total payments
Goods and services
Goods
Services
Travel
Transportation
Other services
Primary income
Compensation of employees
Investment income
Direct investments
Portfolio investments
Other investments
Secondary income
Private transfers
Government transfers
Total balance
Goods and services
Goods
Services
Travel
Transportation
Other services
Primary income
Compensation of employees
Investment income
Direct investments
Portfolio investments
Other investments
Secondary income
Private transfers
Government transfers
Outflows
Net
2004
489,090
Travel
Current account
2003
531,961
Services
•  Investment income (i.e. receiving interest or dividends):
•  direct investments
•  portfolio investments
2014
2002
$ millions
•  Goods and services:
•  goods
•  services
•  travel
•  transportation
•  other services
Inflows
2001
Cur r e nt account
2010
2011
2012
$ millions
2013
2014
555,594
483,213
403,967
79,247
16,320
12,757
50,170
62,895
1,259
61,637
38,612
17,940
5,084
9,485
2,901
6,585
614,013
514,817
413,670
101,147
30,638
22,209
48,300
86,394
2,977
83,417
40,940
36,331
6,146
12,802
7,218
5,584
-58,419
-31,604
-9,703
-21,900
-14,317
-9,452
1,869
-23,499
-1,718
-21,780
-2,328
-18,391
-1,061
-3,316
-4,317
1,001
620,108
540,969
456,613
84,356
16,624
13,588
54,145
69,335
1,154
68,180
43,985
18,997
5,198
9,805
3,282
6,523
667,303
562,198
456,045
106,153
32,974
23,674
49,505
92,402
3,116
89,286
44,649
38,105
6,532
12,704
7,242
5,462
-47,195
-21,229
567
-21,797
-16,351
-10,086
4,640
-23,067
-1,962
-21,105
-664
-19,108
-1,334
-2,899
-3,959
1,061
636,418
553,130
463,135
89,995
17,388
14,031
58,575
73,622
1,205
72,418
46,118
20,816
5,483
9,666
2,839
6,826
696,329
586,959
474,287
112,672
35,030
23,735
53,907
96,417
3,177
93,241
46,968
39,551
6,721
12,953
7,528
5,424
-59,911
-33,829
-11,152
-22,677
-17,643
-9,703
4,668
-22,795
-1,972
-20,823
-850
-18,735
-1,238
-3,287
-4,689
1,402
658,556
571,808
479,266
92,542
18,201
14,194
60,148
75,229
1,235
73,994
45,697
22,797
5,499
11,519
3,616
7,903
714,810
602,027
486,487
115,540
36,161
24,035
55,343
99,394
3,280
96,114
46,432
41,750
7,931
13,389
7,674
5,715
-56,254
-30,219
-7,221
-22,997
-17,960
-9,841
4,804
-24,165
-2,045
-22,120
-735
-18,953
-2,432
-1,870
-4,058
2,188
717,122
623,764
528,574
95,190
19,296
14,671
61,223
81,443
1,304
80,138
48,088
25,166
6,884
11,915
4,194
7,721
760,621
641,616
523,680
117,936
37,201
24,723
56,012
105,683
3,386
102,297
48,597
45,389
8,312
13,322
8,059
5,263
-43,500
-17,852
4,894
-22,746
-17,905
-10,052
5,211
-24,241
-2,082
-22,159
-509
-20,222
-1,428
-1,407
-3,865
2,458
9,157
7,715
7,225
-4,147
-3,917
-1,072
-854
-769
119
490
1,124
1,598
1,006
274
125
Capital (and Financial) Account
•  capital account: The capital account covers capital transfers and
transactions in non-produced, non-financial assets.
•  Non-financial non-produced assets consist of natural
resources (e.g. land, mineral and energy reserves, noncultivated biological resources such as virgin forest, water
resources, radio spectra and others), contracts, leases and
licenses as well as goodwill and marketing assets.
•  financial account (i.e. financial assets)
•  long-term capital flows:
•  direct foreign investment (implies ownership / control,
i.e. foreign branches or subsidiaries)
•  portfolio foreign investment, - i.e. purchasing stocks /
bonds with a maturity > 1 year)
•  does not imply ownership / control
•  short-term capital flows: bonds / stock < 1 year maturity
•  official reserves
•  includes gold, US dollars, other foreign currency, and
special drawings rights (deposits with the International
Monetary Fund)
Source: Statistics Canada, CANSIM, tables 376-0101, Last modified: 2015-03-02.
2004
2014
Canada's balance of international payments
(Capital and financial account)
2000
2001
2002
2003
2004
Net
$ millions
Net
Total capital and financial accounts, net flow
Capital account, net flow
Capital account, inflow s
Capital account, outflow s
Financial account, net flow 1
Official Reserves:
A negative number
indicates that we
own more foreign
currency – which
is seen as an
investment in
another country!
Canadian assets, net flow
Canadian direct investments abroad
Canadian portfolio investments
Foreign portfolio bonds
Foreign portfolio stocks
Other Canadian investments
Loans
Deposits
Official international reserves
Other assets
Canadian liabilities, net flow
Foreign direct investments in Canada
Foreign portfolio investments
Canadian portfolio bonds
Canadian portfolio stocks
Statistical
Discrepancy:
Money lost due
to illegal &
unrecorded
transactions.
Canadian money market
Other foreign investments
Loans
Deposits
Other liabilities
Statistical discrepancy
-21,756
-15,379
-12,850
-20,725
-24,447
5,314
5,784
4,988
3,968
4,415
6,003
6,482
5,648
4,834
5,130
-689
-698
-661
-866
-715
-27,070
-21,163
-17,837
-24,694
-28,862
-142,039
-113,743
-79,765
-68,111
-81,677
-66,352
-55,918
-41,472
-30,191
-57,453
-63,927
-37,573
-25,087
-12,519
-16,174
Official Reserves:
A negative number
indicates that we
own more foreign
currency – which
is seen as an
investment in
another country!
Financial Account
2010
2011
2012
2013
2014
$ millions
Net lending / net borrowing, from financial account
-56,672
-54,043
-59,170
-55,693
-36,639
Net acquisition of financial assets
97,853
109,173
122,054
76,845
135,564
Canadian direct investment abroad
35,770
51,602
53,894
52,042
58,203
Canadian portfolio investment
14,453
18,331
35,141
29,310
56,359
Foreign debt securities
1,063
-7,924
11,933
23,008
20,619
Foreign money market instruments
2,442
-2,036
-1,615
1,586
-88
Foreign bonds
-1,379
-5,888
13,548
21,421
20,707
Foreign equity and investment fund shares
13,390
26,255
23,208
6,302
35,740
Official international reserves
3,989
8,061
1,697
4,868
5,854
Other Canadian investment
43,640
31,180
31,322
-9,376
15,147
Other Canadian investment, loans
17,330
14,630
23,627
-419
26,130
Other Canadian investment, currency and deposits
10,909
28,172
1,566
824
-8,986
Other Canadian investment, other assets
15,401
-11,622
6,129
-9,781
-1,996
Net incurrence of liabilities
154,524
163,216
181,224
132,537
172,203
Foreign direct investment in Canada
29,257
39,254
39,234
72,668
59,579
-3,963
-1,920
-6,229
-8,071
-15,102
-59,965
-35,653
-18,858
-4,449
-1,073
-11,759
-20,251
-13,206
-25,401
-8,049
-5,126
-8,219
-8,182
6,171
1,935
3,973
-2,172
5,731
-23,234
-8,528
-5,480
-3,353
298
4,693
3,427
-5,125
-6,507
-11,053
-13,030
-4,882
Foreign portfolio investment
113,443
100,533
83,539
43,087
59,793
114,969
92,580
61,928
43,417
52,814
Canadian debt securities
95,247
79,396
82,572
24,191
34,577
99,198
42,561
33,026
9,222
8,548
Canadian money market instruments
3,205
32,021
13,255
-2,521
-2,747
14,598
38,509
20,935
18,469
53,208
Canadian bonds
92,043
47,375
69,316
26,712
37,324
-21,458
41,733
18,684
7,000
20,156
Canadian equity and investment fund shares
18,196
21,136
968
18,896
25,216
35,232
4,125
-1,531
12,931
35,771
Other foreign investment
11,824
23,429
58,450
16,782
52,830
824
-7,349
3,782
-1,461
-2,719
Loans
-323
-1,361
6,010
2,598
1,834
1,173
11,510
7,967
15,726
-8,942
Currency and deposits
12,625
22,853
52,288
14,549
49,155
3,396
-6,493
1,400
1,741
-4,222
Special drawing rights
0
0
0
0
0
-962
23,716
13,568
18,265
-566
Other liabilities
-477
1,937
152
-365
1,841
-1,261
-5,713
-7,001
-4,280
-4,154
Discrepancy (net errors and omissions)
1,874
-6,838
881
614
6,886
-7,514
-9,624
-9,815
-3,092
-9,376
Statistical
Discrepancy:
Money lost due
to illegal &
unrecorded
transactions.
Source: Statistics Canada, CANSIM, tables 376-0102, Last modified:
2015-03-02.
2
17-05-11
Official Reserves Account
Bank of Canada
•  official reserves (net official monetary movements)
Includes gold, US dollars, other foreign currency, and special
drawings rights (deposits with the International Monetary Fund)
Final Analyses
Not too long ago, we had a handsome positive balance in
our Current Account. Generally speaking, a trade surplus.
Q: How is it that we can have trade surpluses when we
traditionally sell low value-added products (wheat, fish,
lumber, etc.) while buying high value-added products from
abroad (technology, appliances, vehicles, etc.)? What
exports are we selling these days that are bringing
in such big bucks?
A: Contrary to popular belief we DON'T export low valueadded products. By far, our biggest NET export item is
now auto parts and finished cars. We "consume" about
12% of the North American auto market, yet we produce
16%. Currently, Ontario produces more auto parts and
finished cars than the state of Michigan!
Final Analyses
Is it bad to have a negative balance in our Capital &
Financial Account?
Q: What does the capital and financial account actually
show us?
A: The Capital and Financial Accounts indicate how
much capital is flowing into Canada versus how much
is flowing out. A negative number would indicate that
more capital is flowing OUT of Canada because
Canadians are purchasing a lot more foreign stocks,
bonds, and real-estate than foreigners are purchasing
of Canadian stocks, bonds, and real-estate.
Thus, it would mean we are buying up more interest in
foreign markets than they are buying in ours.
Final Analyses
Q: So then, is a negative balance in the financial account good or
bad?
A: A negative balance in the Capital is generally viewed as a good
thing… this is for a couple of reasons.
1. A negative balance in the Capital account means that we have
a positive balance in our Current account. More on that later!
2. Our negative balance indicates that Canadians are buying up
more interest in foreign markets than they are buying in ours.
So then, what would you prefer? Would you rather own, or be owned.
In the words of CBC’s financial commentator Michael Hlinka, who
owns shares of American firms like Budweiser, Pfizer, and
Washington Mutual (who tend to pay regular and generous quarterly
dividends) “…the
idea of all of those Americans
working for little old me warms the cockles of my
heart!”
3
17-05-11
Final Analyses
Final Analyses
Q: We have a negative balance in our Current Account, and a
positive balance in our Capital / Financial Account. Is this a
coincidence?
Here’s a down to earth analogy:
Imagine Peter has the following economic data for this past year:
$24,000.00 earned through work
$1,000.00 earned from investments
$25,000.00 is Peter’s “current” account income
A: No, it’s not! As a matter of fact, the two accounts are
supposed to balance each other out. Think of it this way…
If we purchased more goods and services from the rest of the
world than they purchased from us, then where did we get the
money? Simple, we borrowed it on the international money
market, and we are in debt for the amount we overspent.
If we sold more goods and services to the rest of the world
than they purchased from us, then where did they get the
money? Well, they borrowed it from us on the international
money market and now they owe it to us.
$15,000.00 spent on consumption
$20,000.00 spent on a new car
$35,000.00 is Peter’s “current” account expenditure
$10,000.00 is Peter’s current account deficit
How was this paid for? Through the capital account!
$8,000.00 was borrowed from the bank
$2,000.00 is how much savings decreased
$10,000.00 is Peter’s capital account surplus
Canada's balance of international payments
Canada's balance of international payments
(Cur r e nt account)
2000
2001
2002
2003
(Capital and financial account)
2004
2000
$ millions
2001
Cur r e nt account
Inflows
Total r e ce ipts
Goods and services
Goods
Services
Travel
Transportation
Other services
Investment income
Direct investments
Portf olio investments
Other investments
Transf ers
Outflows
Total paym e nts
Goods and services
Goods
Services
Travel
Transportation
Other services
Investment income
Direct investments
Portf olio investments
Other investments
Transf ers
Net
Total balance
Goods and services
Goods
Services
Travel
Transportation
Other services
Investment income
Direct investments
Portf olio investments
Other investments
Transf ers
2002
2003
2004
$ millions
531,961
514,219
515,836
499,388
Net
538,533
489,090
481,383
477,694
459,974
492,618
429,372
420,657
413,795
400,010
430,279
59,718
60,725
63,899
59,964
62,338
15,997
16,414
16,747
14,746
16,557
11,196
10,574
11,115
10,285
11,857
Total capital and financial accounts, net flow
Capital account, net flow
Capital account, inf low s
Capital account, outf low s
32,525
33,737
36,037
34,933
33,924
Financial account, net flow 1
36,755
25,866
31,185
32,700
38,897
Canadian assets, net f low
15,090
6,377
13,624
16,455
22,025
7,189
14,476
7,960
11,529
9,628
7,934
9,321
6,923
9,157
6,970
6,957
6,714
7,019
489,216
493,171
475,570
504,710
427,836
418,612
427,382
412,688
436,481
362,337
350,682
356,581
341,833
362,952
65,500
67,930
70,801
70,855
73,529
18,444
18,634
18,333
18,608
20,703
13,916
13,868
14,122
14,225
15,774
33,140
35,428
38,347
38,022
37,052
69,863
65,231
59,839
56,443
61,335
24,477
22,263
20,670
20,884
26,766
29,838
30,585
30,466
28,755
27,344
15,548
12,383
6,804
Canadian portf olio investments
7,715
6,116
502,692
8,702
Canadian direct investments abroad
Foreign portf olio bonds
Foreign portf olio stocks
Other Canadian investments
-$33,823.00
Loans
Deposits
Of f icial international reserves
Other assets
Canadian liabilities, net f low
7,225
Foreign direct investments in Canada
4,992
5,373
5,951
6,440
6,894
29,269
25,003
22,664
23,818
33,824
61,254
62,770
50,312
47,287
56,137
Canadian portf olio bonds
67,036
69,975
57,214
58,177
67,328
Canadian portf olio stocks
-5,782
-7,204
-6,903
-10,891
-11,191
-2,447
-2,220
-1,586
-3,862
-4,147
-2,719
-3,294
-3,007
-3,940
-3,917
-615
-1,691
-2,310
-3,089
-3,127
-33,109
-39,365
-28,653
-23,743
-22,438
-9,388
-15,886
-7,046
-4,429
-4,741
-22,649
-22,625
-20,838
-19,433
-18,186
-1,072
-854
-769
119
490
1,124
1,598
1,006
274
125
Foreign portf olio investments
Canadian money market
Money lost
due to illegal
& unrecorded
transactions.
Other f oreign investments
Loans
Deposits
Other liabilities
Statistical discrepancy
-21,756
-15,379
-12,850
-20,725
-24,447
5,314
5,784
4,988
3,968
4,415
6,003
6,482
5,648
4,834
-689
-698
-661
-866
-715
-27,070
-21,163
-17,837
-24,694
-28,862
-142,039
-113,743
-79,765
-68,111
-81,677
-66,352
-55,918
-41,472
-30,191
-57,453
-63,927
-37,573
-25,087
-12,519
-16,174
-3,963
-1,920
-6,229
-8,071
-15,102
-59,965
-35,653
-18,858
-4,449
-1,073
-11,759
-20,251
-13,206
-25,401
-8,049
-5,126
-8,219
-8,182
6,171
1,935
3,973
-2,172
5,731
-23,234
-8,528
-5,480
-3,353
298
4,693
5,130
3,427
-5,125
-6,507
-11,053
-13,030
-4,882
114,969
92,580
61,928
43,417
52,814
99,198
42,561
33,026
9,222
8,548
14,598
38,509
20,935
18,469
53,208
-21,458
41,733
18,684
7,000
20,156
35,232
4,125
-1,531
12,931
35,771
824
-7,349
3,782
-1,461
-2,719
1,173
11,510
7,967
15,726
-8,942
3,396
-6,493
1,400
1,741
-4,222
-962
23,716
13,568
18,265
-566
-1,261
-5,713
-7,001
-4,280
-4,154
-7,514
-9,624
-9,815
-3,092
-9,376
4