Current Account Surplus
A current account surplus is a positive current account balance, indicating that a nation is a net lender to the rest of the world. Because the trade balance generally has the largest impact on the current account balance, nations with large and consistent current account surpluses tend to be exporters of manufactured products or energy. A current account surplus is a positive current account balance, indicating that a nation is a net lender to the rest of the world. Current account surpluses refer to positive current account balances, meaning that a country has more exports than imports of goods and services. These current account surpluses finance current account deficits in other nations.
What Is a Current Account Surplus?
A current account surplus is a positive current account balance, indicating that a nation is a net lender to the rest of the world.
A current account surplus can be contrasted with a current account deficit.
Understanding Current Account Surplus
The current account measures a country's imports and exports of goods and services over a defined period of time, in addition to earnings from cross-border investments, and transfer payments. Exports, earnings on investments abroad, and incoming transfer payments (aid and remittances) are recorded as credits; imports, foreign investors' earnings on investments in the country, and outgoing transfer payments are recorded as debits.
When credits exceed debits, the country enjoys a current account surplus, meaning that the rest of the world is in effect borrowing from it. A current account surplus increases a nation's net assets by the amount of the surplus.
Because the trade balance generally has the largest impact on the current account balance, nations with large and consistent current account surpluses tend to be exporters of manufactured products or energy. Manufactured product exporters generally follow a policy of mass-market production — like China — or have a reputation for top quality, like Germany, Japan, and Switzerland.
Current Account Surplus Across the World
In 2020, according to the World Bank, the ten countries with the largest current account surpluses as a percentage of GDP were China, Germany, Japan, South Korea, the Netherlands, Italy, Singapore, Russia, Australia, and Kuwait. These current account surpluses finance current account deficits in other nations. The U.S. has the largest deficit by far.
A nation with consistent current account surpluses may face upward pressure on its currency. Such nations may take steps to stem the appreciation of their currencies in order to maintain their export competitiveness. Japan, for instance, has frequently intervened in the foreign exchange market when the yen rises by buying large amounts of dollars in exchange for yen.
Current Account Surplus as a Negative Indicator
Current account surpluses are generally considered a positive sign in an economy. However, in some cases, they are also negative indicators. For example, Japan's current account surplus is as much due to low domestic demand as due to its competitiveness in exports. The low domestic demand has translated to stagflation in its economy and low wage growth. Current account surpluses can also be the effect of a recession, when domestic demand dips and imports are curbed if a currency is depreciated.
Related terms:
Balance of Payments (BOP)
The balance of payments (BOP) is a statement of all transactions made between entities in one country and the rest of the world over a defined period of time, such as a quarter or a year. read more
Balance of Trade (BOT)
Balance of trade is the difference between the value of a country's exports and the value of its imports; it is the largest component of a country's balance of payments. read more
Capital Account
In economics, the capital account is the part of the balance of payments that records net changes in a country’s financial assets and liabilities. read more
Current Account
Current account records a country's imports and exports of goods and services, payments made to foreign investors, and transfers, such as foreign aid. read more
Current Account Deficit
A current account deficit occurs when the total value of goods and services a country imports exceeds the total value of goods and services it exports. read more
Foreign Exchange Market
The foreign exchange market is an over-the-counter (OTC) marketplace that determines the exchange rate for global currencies. read more
Gross Domestic Product (GDP)
Gross domestic product (GDP) is the monetary value of all finished goods and services made within a country during a specific period. read more
JPY (Japanese Yen)
JPY is the currency abbreviation or the currency symbol for the Japanese yen (JPY), the currency for Japan. read more
Net Foreign Assets (NFA)
Net foreign assets (NFA) determine a country's indebtedness status by measuring the difference in its external assets and liabilities. read more
Net International Investment Position (NIIP)
A net international investment position (NIIP) is the gap between a nation’s stock of foreign assets and a foreigner's stock of that nation's assets. read more