Come on, it’s the basics (balance of payments)!

Yes it is true.

Many investment gurus are not able to make money through investing so they turned to writing newsletters and doing seminars. Many analysts are paid to bullshit their clients under deal considerations and tight deadline constraints. Many so-called professionals directly or indirectly involved in the financial industry don’t even know what they are talking about…

Read this somewhere the other day: “…balance of payments in surplus…boost foreign exchange reserve…”

Oh dear, balance of payments will always balance, so there will be no surplus or deficit in balance of payments. There can be surplus in current account (often because of trade surplus), or capital account, but balance of payments itself will always net to zero.

As for foreign exchange reserve, in a simplified way, the usual phenomenon in surplus countries is this: export more than import -> trade surplus -> current account surplus. Under this scenario, normally either foreign exchange reserve will increase or the income from the surplus be lent out to other countries (e.g. China’s purchase of US Treasury bonds). Both of these will contribute to capital account deficits in BOP accounting.

So here’s what we got, surplus in current account and deficits in capital account, balance of payments net to zero (BOP=current account + capital account + balancing item). Balanced.

So come on, professionals, doin your homework is a basic requirement…

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