A balanced balance of payments

• The current account of the balance of payments records transactions in goods and services between UK residents and the rest of the world.
• Balanced balance of payments: Imports result in a financial outflow from the UK whereas Exports result in a financial inflow to the UK. If imports are greater than exports then the balanced balance of payments is in a deficit and if exports are greater than imports then the balanced balance of payments is in a surplus.
• Why is a balanced balance of payments a macroeconomic objective?

  A stable and balanced balance of payments over time is a sign of a healthy economy that is competitive and sells sufficient goods and services overseas to pay for its imports. Continued deficits of the current account of the balanced balance of payments means the UK earns less foreign currency then necessary in order to finance its imports.
• Why is a balanced balance of payments a macroeconomic objective?

  Continual surpluses on the current account of the balanced balance of payments is undesirable as it highlights that a country is not using its reserves of foreign currency in order to enjoy fully the imports it can afford therefore welfare is unlikely to be maximised. Furthermore, if one country has a surplus in their balanced balance of payments current account this means another country will have a deficit; in which they will take action to remove this deficit leading to a reduction in the volume of international trade.