Unit 7; Day 2

Relationship Between Current and Capital Account (Quick video summarizing the relationship)

• Current account and Capital Account should zero out
• If current account has negative balance(deficit), then capital account should then have a positive balance(Surplus) 
• Official Reserves
• The foreign currency holdings of the US Federal Reserve 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 balance of payments
• The Official reserves zeros out the balance of payments
• Active v. Passive Official Reserves
• The US is passive in its use of official Reserves. It does not seek to manipulate the dollar exchange