What is a Current Account?

Mary McMahon

A current account is an assessment of a country's current balance of transactions. If the current account is in surplus, it means that a nation has excess funds and is investing money overseas. When in deficit, a nation is borrowing from other countries to finance its activities. This assessment is an important indicator for economic health and foreign trade activities and it is regularly updated with the most current applicable information.

Businessman giving a thumbs-up
Businessman giving a thumbs-up

To determine current account, a nation's net imports are subtracted from exports. This includes payments for goods and services, interest payments, and other types of foreign trade activity. When imports are less than exports, the current account is said to be in surplus. The nation is retaining more funds than it spends. When the imports exceed exports, the nation is in a state of trade deficit. It is spending more than it earns and is indebted to other nations.

The current account is part of the balance of trade. The other key aspect of the balance of trade is the capital account, which accounts for foreign direct investment. These two metrics are used to assess a nation's activities on the international financial market. Both are routinely recalculated to provide up-to-date information on a nation's financial activities. Nations keep their own statistics and some international agencies may track balance of trade as well.

There are a number of trends that can be followed in the long term by charting a country's balance of trade. Nations that become indebted can become trapped in a cycle of debt, repeatedly borrowing money to finance activities and being unable to pay it off. This can lead to chronic financial problems, as nations use austerity measures and other means to attempt to repay their foreign debt. Nations with surpluses also tend to acquire larger surpluses over time, relying less on imports to supply their needs. This can lead to a concentration of wealth in the hands of some countries.

Information about current account, capital account, and other financial matters can commonly be found listed in financial publications and it may be announced on the news when new numbers are released. Historic data can be obtained through government agencies charged with keeping financial statistics and monitoring foreign trade activity. This data can be useful when identifying and exploring financial trends. Historical and current information is used by economists to make projections about economic health.

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