The Residual Sector: The Balance of Payments

Abstract

As indicated in Chapter 1, each participant in a financial transaction must have a partner participant. Therefore, if on balance, all the residents of a country have aggregate net balances on any accounts, non-residents must have countervailing balances on these accounts. Either all the domestic entries in a set of financial accounts sum to an account that is the equivalent of the balance of payments statement; or a set of financial accounts, including an account for the foreign sector,¹ sums in all its entries to zero. Hence, the accounts for the foreign sector are accounts that countervail those of the domestic sectors.