The impact of the balance of payments on exchange rates

Exchange rates are influenced by various factors, and the balance of payments is also one of them. The so-called balance of payments is officially the sum of the monetary values of various economic transactions between residents and non-residents in a certain period of time. The balance of payments reflects the comprehensive situation of a country's foreign trade balance in a certain period of time, with the focus on foreign trade. Therefore, the balance of payments is also an important factor affecting short-term changes in exchange rates.

The balance of payments includes the current account and the capital and financial account, and the most important is the current account. The current account is the sum of visible trade and intangible trade, so the current account is also an important indicator to judge the operation of the macroeconomy. The judgment method is as follows:

If a country's total imports are greater than its total exports, then the country will have a "trade deficit"; if a country's total imports are less than its total exports, then the country will have a "trade surplus".

At the same time, different countries publish the balance of payments at different times. For example, the United States publishes the balance of payments once a month, while our country publishes the balance of payments once a quarter.

Changes in the balance of payments can affect a countryforeign exchange marketThe supply relationship, which in turn affects the exchange rate level. for example:

When a country's balance of payments has a large surplus, then the country's currency demand will increase, which will lead to an increase in the inflow of foreign exchange into the country. This will be reflected in the foreign exchange market as the supply of foreign exchange exceeds the demand for foreign exchange, resulting in the appreciation of the local currency and the depreciation of the foreign currency. When a country's balance of payments has a large deficit, then the country's currency demand will decrease, which will lead to a decrease in the inflow of foreign exchange into the country. This will be reflected in the foreign exchange market as the supply of foreign exchange is less than the demand for foreign exchange, resulting in the depreciation of the local currency and the appreciation of foreign exchange.

So international trade data is particularly important in the balance of payments. The reason is that international trade reflects the competitiveness of a country's exports. And the competitiveness of that country's exports affects investors' confidence in the country's currency. If the trade surplus continues to grow, investors' confidence and demand for the country's currency increase, then the country's currency must appreciate; conversely, if the large trade deficit continues to increase, investors' confidence and demand for the country's currency decrease, and eventually the country's currency depreciates.

An important reason for the decline in the exchange rate of the US dollar in recent years is that the trade deficit of the United States is becoming more and more serious. On the contrary, due to the huge trade surplus of Japan, the balance of payments is better, and the foreign exchange rate of the yen is rising.