ADDITIONAL MATERIAL ONCHAPTER 12[1]
Balance of Payments (BOP)
BOP = [Current Account Balance] + [Capital & Financial Account Balance] + [Net Errors & Omissions]
Balance of Payments Statistics of TurkeyANALYTIC PRESENTATION (Million US Dollars) / 2008 / 2009
A- / CURRENT ACCOUNT / -41.947 / -13.854
1. / Goods: exports f.o.b. / 140.799 / 109.672
2. / Goods: imports f.o.b. / -193.821 / -134.401
Balance on Goods / -53.022 / -24.729
3. / Services: credit / 34.824 / 32.752
4. / Services: debit / -17.703 / -16.533
Balance on Goods and Services / -35.901 / -8.510
5. / Income: credit / 6.889 / 5.178
6. / Income: debit / -15.048 / -12.824
Balance on Goods, Services and Income / -44.060 / -16.156
7. / Current Transfers / 2.113 / 2.302
B. / CAPITAL ACCOUNT / 0 / 0
C. / FINANCIAL ACCOUNT / 33.536 / 6.208
8. / Direct Investment abroad / -2.549 / -1.571
9. / Direct Investment in Turkey / 18.269 / 7.597
10. / Portfolio Investment-Assets / -1.276 / -2.740
11. / Portfolio Investment-Liabilities / -3.770 / 2.938
11.1. / Equity Securities / 716 / 2.827
11.2. / Debt Securities / -4.486 / 111
12. / Other Investment-Assets / -10.930 / 4.132
12.1. / Monetary Authority / 2 / -306
12.2. / General Government / 0 / 0
12.3. / Banks / -9.159 / 5.841
12.4. / Other Sectors / -1.773 / -1.403
13. / Other Investment-Liabilities / 33.792 / -4.148
13.1. / Monetary Authority / -1.791 / -901
13.2. / General Government / 1.742 / 1.598
13.3. / Banks / 8.195 / 3.849
13.4. / Other Sectors / 25.646 / -8.694
Current, Capital and Financial Accounts / -8.411 / -7.646
D. / NET ERRORS AND OMISSIONS / 5.653 / 8.437
GENERAL BALANCE / -2.758 / 791
E. / Reserve Assets / 2.758 / -791
14. / Official Reserves / 1.057 / -111
15. / Use of Fund Credit and Loans / 1.701 / -680
Source: Central Bank of the Republic of Turkey
The balance of payments is a statistical statement that systematically records all the economic transactions between residents of a country (Central Government, monetary authority, banks, other sector) and nonresidents for a specific time period.
The current account covers all transactions that involve real sources (goods, services, income) and current transfers.
The capital and financial accounts show how internationalpurcahses and sales of assets are financed (by means of capital transfer or investment in financial instruments).
The capital account consists of capital transfers (such as debt forgiveness, migrants’ transfers) and non-produced, non-financial assets (acquisition/disposal of non-produced assets, like land and acquisition/ disposal of intangible assets, like patents and copyrights)
The financial account consists of transactions in the external assets and liabilities of an economy. International short and long-term financial flows of private and public sector are followed under this account.
The net errors and omissions item shows the difference between the the “CurrentAccount” and the“Capital and Financial Account”. The collection of data from different sources leads to differences invaluation, measurement and time of recording; as a result, these differences are reflected in this residual item.
Note that in the above BOP table,
General Balance = Reserve Assets
This corresponds to the definition “the increase in official reserves is also called the overall balance of payments surplus” (on page 282 of your text book).
Balance of Payments Surplus = Increase in Official Exchange Reserves
Balance of Payments Deficit = Decrease in Official Exchange Reserves
General Balance in 2008 = - 2.758 means that there is BOP deficitof about 2,8 billion US dollars, which corresponds to the same amount of a decrease in official exchange reserves (or reserve assets).
General Balance in 2009 = 791 means that there is BOP surplusof about 791 million US dollars, which corresponds to the same amount of an increase in official exchange reserves (or reserve assets).
Real Effective Exchange Rate
The weighted average value of a country's currency relative to all major currencies being traded within a pool of currencies. The weights are determined by the importance a home country places on all other currencies traded within the pool, as measured by the balance of trade.
The real effective exchange rate (REER) obtained by deflating the nominal effectiveexchange rate with price indices is one of the most commonly used indicators of internationalcompetitiveness. According to the definition used by International Monetary Fund (IMF), thereal effective exchange rate is computed as theweighted geometric average of the price of the domestic country relative to the prices of its trade partners. The real effective exchange ratecan be expressed as:
where, P0 Turkey’s price index,R0 nominal exchange rate of Turkish Lira in US dollars,Pj price index of country j,Rj nominal exchange rate of country j’s currency in US dollars,W0j country j’s weight for Turkey.
Consumer Price Index (CPI)based real effective exchange rate indexis calculated using the IMF weights for 19 countries including Germany, USA, Italy, France, United Kingdom, Japan, Netherlands, Belgium, Switzerland, Austria, Spain, Canada, Korea, Sweden, Taiwan, Iran, Brazil, China and Greece.
Producers Price Index (PPI) based real effective exchange rate indexis calculated using the IMF weights for 17 countries including Germany, USA, Italy, France, United Kingdom, Japan, Netherlands, Belgium, Switzerland, Austria, Spain, Canada, Korea, Sweden, Iran, Brazil and Greece.
An increase in these indices denotes an appreciation of the domestic currecy.
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[1]All definitions are taken from the Central Bank of the Republic of Turkey (CBRT).