Capital Account

Note: The capital account is divided into two parts (i) the transactions of the private sector; and (ii) official reserves transactions, which corresponds to the central bank’s activities. Hence, a current account deficit can be financed by the private sector selling off their assets abroad or by borrowing abroad.

If this is insufficient, the current account deficit can also be financed by a rundown of the government’s foreign exchange reserves; and vice versa. A country having an overall BOP surplus will see an increase in its official reserves while a country having a BOP deficit will see a rundown of its official reserves.