What is a Current Account?

Current Account is an important indicator of the economic health of a nation. It keeps a record of the transactions of the nation with the rest of the world i.e. the net of trade in goods and services, net transfer payments and also net earnings on cross-border investments over a span of a year.

It comprises one whole half of the balance of payments of a nation. The other half is composed of the capital account. It keeps a record of the imports and exports, transfers like foreign aid and other remittances, various payments received from the investments of the country abroad. The balance of the current account maybe is positive or negative. The positive denotes a surplus while the negative stands for a deficit. Exports are generally recorded as credits and imports are recorded as debits in the balance of payments.

Thus a positive current account shows that the nation is a net lender to the rest of the world while a negative current account shows it is effectively a net borrower.