Current Transfers
Current transfers are current account transactions in which a resident entity in one nation provides a non-resident entity with an economic value, such as a real resource or financial item, without receiving something of economic value in exchange. General government transfers include the following: Transfers in cash or kind backed by international cooperation between governments of different economies, or between a government and an international organization Cash transfers between governments for financing current expenditures by the recipient government Gifts of food, clothing, medical aid, etc. as relief efforts after a natural disaster Gifts of certain military equipment Current taxes on income and wealth, and other transfers such as social security contributions Other sector transfers include: Workers’ remittances by migrants (someone who stays in another nation for more than a year) who are considered residents of other countries Transfers in cash and kind for disaster relief Regular contributions to charitable, religious, scientific, and cultural organizations Premiums and claims for non-life insurance The International Monetary Fund's (IMF) _Balance of Payments Manual_ generally sets the terms of accounting for current transfers. The two main types of current transfers are general government transfers, which are conducted between governments of two countries, and other sector transfers, such as those involving worker remittances or premiums associated with non-life insurances. Current transfers include all transfers that do not have the following characteristics of capital transfers: 1. Transfers of ownership of fixed assets 2. Transfers of funds linked to acquisition or disposal of fixed assets Current transfers are one-sided transaction transfers characterized by a resident entity in one nation providing a non-resident entity with an economic value.
More in Economy
What Are Current Transfers?
Current transfers are current account transactions in which a resident entity in one nation provides a non-resident entity with an economic value, such as a real resource or financial item, without receiving something of economic value in exchange.
Understanding Current Transfers
Current transfers are transactions where the originator does not receive a “quid pro quo” in return; this absence of economic value on one side is represented in the balance of payments by one-sided transactions called transfers.
Current transfers affect the current account and are separate and distinct from capital transfers, which are included in the capital and financial account. Current transfers include workers’ remittances, donations, tax payments, foreign aid, and grants.
Current transfers include all transfers that do not have the following characteristics of capital transfers:
- Transfers of ownership of fixed assets
- Transfers of funds linked to acquisition or disposal of fixed assets
- Forgiveness by creditors of liabilities without any counterparts being received in return
Types of Current Transfers
The two main types of current transfers are general government and other sectors.
General government transfers include the following:
Other sector transfers include:
The International Monetary Fund's (IMF) Balance of Payments Manual generally sets the terms of accounting for current transfers. While current transfers are grouped separately from goods, services, and income in the balance of payments because of their one-sided nature, the distinction between a transfer and a regular transaction is not always clear.
For example, remittances from overseas workers are classified by the recipient nation either as current transfers or as “compensation of employees,” depending on the length of stay of these workers in the foreign countries where they are working. As another example, a remittance from a resident of one nation to finance another resident who is staying abroad temporarily is not recorded as a transfer, since it is considered a transaction between residents of the same country.
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
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
Conditionality
Conditionality refers to conditions attached to the provision of loans, debt relief, or aid. read more
Creditor
A creditor is an entity that extends credit by giving another entity permission to borrow money if it is paid back at a later date. 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
Economic Value
Economic value is the worth of a good or service determined by people's preferences and the trade-offs they choose given their scarce resources. read more
Economics : Overview, Types, & Indicators
Economics is a branch of social science focused on the production, distribution, and consumption of goods and services. read more
Financial Account
The financial account is a component of a country’s balance of payments that outlines the net increases and decreases in ownership of a country’s assets. read more
Fixed Asset
A fixed asset is a long-term tangible asset that a firm owns and uses to produce income and is not expected to be used or sold within a year. read more
International Monetary Fund (IMF)
The International Monetary Fund (IMF) is an international organization that promotes global financial stability, encourages international trade, and reduces poverty. read more