Reserve assets are instruments available with government authorities for financing or regulating payment imbalances, it comprises of monetary gold, special drawing rights (SDRs) and foreign exchange. Central bank and treasuries use this instrument in financing the deficit. The reserves are also the balancing figure of the balance of payment account. If sufficient reserves are not available, a country needs to borrow money from institutions like the World Bank and International Monetary Fund (IMF).
AUTONOMOUS AND ACCOMMODATING TRANSACTION
Most of the items of the Current account are items of normal course, i.e, they are not deliberately planned by the government, such as goods and services imported or exported, donations given or taken, these are known as autonomous transaction. These transactions are undertaken mainly from a profit motive. If the balance of payment account does not balance through autonomous transaction capital movement takes place for achieving equilibrium. In accommodating transactions, government may borrow money or attract foreign investment, or lend and invest money in foreign countries such transactions are regarded as accommodating transaction. Thus, accommodating transactions can be regarded as transactions which are deliberately taken to balance the balance of payment account. Thus, we can conclude that the balance of payment account always balances or needs to be balanced, either by autonomous transaction or accommodating transaction
EQUILIBRIUM AND DISEQUILIBRIUM IN BALANCE OF PAYMENT
When the credit is equal to debit in the balance of payment account it is known as equilibrium. Even when all transactions are recorded in the balance of payment account, very often either credit exceeds the debit or debit is more than credit. This causes an imbalance, such imbalance is known as disequilibrium. If the imports are more and exports are less, it is unfavorable for a country and is known as a deficit in balance of payment, whereas if exports are more and imports are less it is favorable and known as surplus. When there is a surplus it can be invested in foreign securities, but when there is a deficit, it is necessary to take necessary steps to rectify the error
METHODS TO SOLVE DISEQUILIBRIUM
There are many reasons which cause disequilibrium such as import of essential materials, natural calamities, low rate of savings, no export potentials and protectionist trade policies. Due to all these the imports in a country are high and exports are less which causes a deficit in the balance of payment account and thus needs to be balanced with a surplus in its Capital account. There are various types of...