Current Account

What Is Current Account?

The current account is one of the two main divisions of the balance of payments. It primarily records trade in goods and services, along with cross-border income, such as wages and investment earnings, and transfer payments. Money that migrant workers send home to family abroad, known as remittances, is recorded here as a transfer, or secondary income. The current account balance is closely related to the overall trade balance, since goods and services trade is its largest component. When a country imports more than it exports and receives less income than it pays out, it runs a current account deficit; the reverse produces a current account surplus.

Why It Matters

The current account offers a broad measure of whether a country is living within its means relative to the rest of the world. Because of the balance-of-payments identity, a current account deficit is matched by a financial account surplus, meaning the country is a net borrower from, or seller of assets to, foreigners; a surplus means it is a net lender. Persistent current account imbalances can signal differences in national saving and investment, and very large deficits sometimes raise concerns about how easily a country can keep attracting the foreign financing that sustains them. Economists and institutions such as the IMF track the current account to gauge external sustainability and to anticipate pressures on exchange rates.

Test Your Knowledge

Questions on this topic from the EconRecall fact bank:

• The balance of payments is conventionally divided into which two main accounts?
  The current account and the capital/financial account
• What does the CURRENT account primarily record?
  Trade in goods and services, plus cross-border income and transfer payments
• In AP Macroeconomics, a country running a current account deficit is generally simultaneously running what?
  A financial account surplus — net capital inflows from abroad