Capital Account
The capital account is a component of a country’s balance of payments, which records the net change in a country’s ownership of foreign financial assets. It is the sum of the balance of trade (goods and services exports less imports), net income from abroad, and net transfer payments. The capital account is one of two major components of a country’s balance of payments, the other being the current account. The capital account is composed of transactions in financial assets and liabilities, including foreign direct investment, portfolio investment, and other investments.
History of the Term
The concept of the capital account was first introduced by the British economist John Maynard Keynes in his book The General Theory of Employment, Interest and Money, published in 1936. Keynes argued that the capital account should be separated from the current account, as it was more closely related to the long-term movements of capital. The International Monetary Fund (IMF) adopted the concept in its Balance of Payments Manual in 1948, and it has since become a standard component of a country’s balance of payments.
Comparisons
| Account | Description |
|---|---|
| Current Account | Records the net change in a country’s ownership of foreign goods and services |
| Capital Account | Records the net change in a country’s ownership of foreign financial assets |
Summary
The capital account is a component of a country’s balance of payments, which records the net change in a country’s ownership of foreign financial assets. It is the sum of the balance of trade, net income from abroad, and net transfer payments. The concept of the capital account was first introduced by the British economist John Maynard Keynes in 1936, and it has since become a standard component of a country’s balance of payments. For more information on the capital account, visit the International Monetary Fund website or the World Bank website.
See Also
- Balance of Payments
- Current Account
- Foreign Direct Investment
- Portfolio Investment
- Net Income from Abroad
- Net Transfer Payments
- International Monetary Fund
- World Bank
- John Maynard Keynes
- The General Theory of Employment, Interest and Money
