Kindly explain the underlined lines in Sandeep Garg Macroeconomics Page 12.8 under 'Official Reserve Transactions'???

Kindly explain the underlined lines in Sandeep Garg Macroeconomics Page 12.8 under 'Official Reserve Transactions'??? DEFICIT (DISEQUILIBRIUM) IN THE BALANCE OF PAYMENTS re is little possibility for the balance of payments to be in equilibrium dunng a given of time, Disequilibrium in BOP of a country may be either in the form of deficit or as surplus. A surplus in BOP does not pose much of a problem. However, a deficit often creates difficult problem for the economy Deficit in balance of payments account arises when total inflows on account of autonomous transactions are less than total outflows on account of such transactions. On the other hand, if total rnnows on account of autonomous transactions exceed total outflows on account of such transactions. then there is surplus m balance of payments account Reserve Transactions Official Reserve Transactions are the transactions by a central bank that causo changes in its official reserves uu!lxpurchæes gwn m@rket In tpre)qn currees assets of a- dZbd. They may be Autonomous Receipts and Autonomous payments. The disequihbrturn betwgen them may lead 10 deficit/ surplus In tho balance 0' payments. For Causes or Deficit (Disequilibrium) in BOP', refer Power Booster Section. EV OF KEY POINTS • Balance of Payments (BOP) provides a systematic record all economic transactions between the residents and the rest of the world, during a given period of time. • Economic (i)Visible •terns' (ii) Irrvisible unilateral Transters: (iv) Capital Transfers. • Balance otTrado (BOT) is tho difference between visible exports and visible imports. • Current Account records an the transactions relating to export and import Of goods, services and unilateral transfers dunng a given penod ot time. • Components ot Current Account: (i) Export and Import Of Goods; (ii) Export and Import of Services: (iii) Undateral Transfers to and from abroad; (iv) Income receipts and payments to and from abroad. Capital Account records all thoso transactions which cause a change in the assets or liabilities ot the residents ot a country or its government. • Components Of Capital Account: (i) Borrowings and lendings to and from abroad; (O) Investments to and from abroad; (iii) Change In Foreign Exchange Reserves. • Autonomous items refer to those international economic transactions, which take place due tosomo economic motive such as profit maximisation.

Dear student, 
Official reserve transactions refers to those transactions of the monetary authority that lead to a change in the official reserves. They are carried through sale or purchase of currency in the exchange market. 
The purchase of country's own currency is a credit item in BOP as it leads to outflow of foreign exchange. On the other hand, sale of own currency is debited as it leads to inflow of foreign currency.   

  • 1
What are you looking for?