Current transfers

Transfers include the inter-country transfer of material resources, when in exchange the country does not receive any value equivalent, i.e. depending on the direction of the transfer, it is reflected in the balance of payments only by credit or debit. Transfers are current and capital. Current transfers are included in the current account of the balance of payments and capital transfers are included in the account of capital transactions.

Current transfers – transfers that do not mean the transfer of ownership of fixed assets, are not related to the acquisition or use of fixed assets and do not provide for the cancellation of debt by the creditor.

Simply put, all those transfers that are not capital, i.e. related to the transfer of ownership of fixed assets or the forgiveness of external debt, are considered current. The level of gross disposable income of the country directly depends on the size of current transfers, which affects the scale of consumption of goods and services. If current transfers mean an outflow of funds from a country, gross disposable income, which could be used for accumulation and consumption, declines, and vice versa. Current transfers are divided into transfers from government and other sectors. Government transfers include ongoing transfers for international cooperation, such as the transfer of money by the state bodies of one country to the government of another country to finance current expenses, the gratuitous transfer of food, clothing, medicines as part of the provision of interstate assistance to victims of natural disasters, the donation of military equipment, annual membership and other contributions to international organizations, etc. Current transfers other sectors include remittances between private individuals and non-state organizations. Remittances are carried out by migrants hired for work in the host country, who have been there for more than a year and are considered its residents (recall that remittances of persons who have been in the country for less than a year are shown under the article “remuneration”). Other ongoing transfers cover gifts, dowries, inheritances, alimony, contributions of individuals to scientific, charitable and religious societies, non-state assistance in the event of natural disasters, distribution of lottery tickets. Of course, in order to get into the balance of payments, all these operations must be carried out between a resident and a non-resident.

Brief conclusions. Thus, the current account is a key concept of the international economy, showing, on the one hand, the result of the country’s interaction with the rest of the world over a certain period of time, and on the other hand, the balance of domestic investment and savings. Current accounts of the balance of payments consist of four main groups: transactions with goods, services, income flows and current transfers. Commodity transactions are a group of current account items of the balance of payments that aggregates, on the basis of fobs at market prices, exports and imports of ordinary goods, goods for further processing, repair of goods, acquisition of goods in ports by transport organizations and non-monetary gold. Services – the next group of items of the current account of the balance of payments – include transport services, travel and a number of other services (communications, construction, insurance, financial, computer and personal services, etc.) provided by residents to non-residents and vice versa. Income is a group of current account items of the balance of payments that is less significant for most countries, including payments between residents and non-residents related to the remuneration of non-residents, and transactions related to income on investments. Finally, current transfers combine all transfers except those that involve the transfer of ownership of fixed assets or the cancellation of debt by the creditor. Basically, these are intergovernmental grants and international remittances of individuals.