Official Reserves

- The Foreign Currency holdings of the United States Federal Reserve’s System

- When there is a balance of payments surplus the FED accumulates foreign currency and debits the balance of payments

- When there is a balance of payments deficit the FED depletes its reserves of foreign currency and credits the balance of payments

- The Official Reserves zeros out the balance of payment

Active v. Passive Official Reserves

- The United States is passive in its use of official reserves. It does not seek to manipulate the dollar exchange rate

- The People Republic of China is active in its use of official reserves. It actively buys and sells dollars in order to maintain a steady exchange rate with the United States

Balance of Trade:

• most correct way:Take your Goods and Services exports minus your goods and services imports (Ge - Gi)

•  trade deficit or trade surplus

• Imports > Exports = Trade deficit

• Exports < Imports = Trade Surplus

• Second way to Calculate: Goods exports plus goods inputs (Ge + Gi)

Current Account:

Take your balance of trade plus your net investment plus your net transfer (BoT + NI + NT)

Capital Account:

Take your foreign purchases of US assets plus US purchase of assets abroad (FUS + USAB)

Official Reserves:

Current Account plus Capital Account (CA + CAP)

How to calculate goods and services:

Goods Imports + Service Imports