The official element in the balance of payments. If a country’s current and capital account balances do not sum to zero, the difference has to be found by the authorities. If the sum is a deficit, the central bank may meet this by running down its foreign exchange reserves, or by borrowing from other central banks or from international institutions, particularly the Intemational Monetary Fund. If the sum of the current and capital accounts is a surplus, the central bank can repay past borrowing, or incretise its foreign exchange reserves.
|Reference: Oxford Press Dictonary of Economics, 5th edt.|