Money and the balance of payments

The paper argues that the balance of payments is a monetary phenomenon, and that it can only be understood by the application of monetary theory. Although this may seem obvious, it tends to be obscured from public understanding, and the understanding even of most international economic theorists, by two facts. First, people often mistakenly refer to “the balance of payments” when intending the net balance of international transactions on a subgroup of accounts in the balance of payments. Second, precisely because the balance of payments is a monetary phenomenon, it requires analysis with the tools of monetary theory which are sophisticated and difficult even for the professional economic theorist to understand. JEL: F32, E40