Foreign trade is essentially about movements of goods, services and capital. The balance
of payments is a record of one country’s international trade with other countries over a
period of time, usually a year. It records the flows of money rather than goods, so that an
import will be recorded as a negative amount since the money is flowing out of the
country to pay for the good, and an export is recorded as a positive amount. Money
flows into and out of countries for two basic reasons: first, in exchange for goods and
services (current transactions), and second, for investment purposes (capital transactions).
In the UK, for example, these two flows are recorded separately in the balance of
payments accounts which are produced by the government. Since 1992, when customs
points were abolished the UK, balance of payments figures have been collected by
Intrastat, and are based on VAT returns. Sections 10.4.1 and 10.4.2 below examine how
the UK records trade flows.
10.4.1 Current transactions
The current account records the flows of money received and paid out in exchange for
goods and services. It is subdivided into visible trade (the import and export of goods)
and invisible trade (the import and export of services). Invisible trade includes:
● services like banking, insurance, tourism
● interest, profits and dividends
● transfers which include grants to developing countries, payments to international
organisations like the EU and private transfers such as gifts.