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What is a Current Account Surplus?

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  • Written By: John Lister
  • Edited By: Kristen Osborne
  • Last Modified Date: 30 August 2016
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A current account surplus is when certain types of money are flowing into a country quicker than they are flowing out. This includes money for exports and imports, money such as interest and dividends, and money paid without anything in return, such as foreign aid. The current account contrasts with the capital account, which covers assets. The current account and capital account together make up a country's balance of payments.

There are three main forms of income that decide whether a country has a current account surplus or deficit. The first is the balance of trade. This simply measures the total value of goods and services a country as a whole exports, minus the total value of goods and services it imports. All the money counted in this measure relates to specific purchases. These can include raw materials and other items that are used by businesses rather than bought directly by consumers.

The second component is factor income. Primarily, this covers the income from investments made by investors in one country in companies or other interests in another country, such as dividends or interest. For statistical purposes, money sent by people working in one country to relatives or friends in another country, known as remittances, are counted towards factor income.

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The final component of a current account surplus or deficit is transfer payments. This is money that is moved unilaterally without any direct expectation of a return. In the context of a national economy, this is most commonly considered foreign aid. This can be politically problematic as a country's generosity may be reflected as a negative in its international economic performance.

A current account surplus is considered by economists to boost a country's net foreign assets. As a very rough analogy, this is the equivalent of a country's balance, positive or negative, in a worldwide bank. In theory, this is how much a country owes, or is owed, on a global basis. In practice, economists dispute whether negative net foreign assets, or a current account deficit, really are a problem. This is because countries do not literally owe the all of money that makes up current and capital account balances. One school of thought has it that a current account deficit is simply a symptom of potential economic problems rather than a definitive cause.

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