9.1. Most entries in the balance of payments record transactions in which real or financial resources (e.g. a good, a service, a financial or non-financial asset) are provided or received in exchange for resources of equal value. When resources are provided without any exchange (e.g. gifts, taxes, grants), such transactions are said to be one-sided and to lack a quid pro quo. To maintain the double entry recording system in the balance of payments, the value provided is matched in the accounts by an offsetting entry that is designated a transfer. Transfers may be voluntary or compulsory and may be recorded in either the current or capital account. Current transfers are distinguished from capital transfers, with the latter included in the capital account.
9.2. Transfers are considered current if they directly affect the level of disposable income and influence the consumption of goods and services. Consumption implies that goods and services are consumed within twelve months. An example of a current transfer is the provision of wheat abroad by Australia in the form of aid, where the wheat is available to be consumed within a relatively short period of its being provided. This is in contrast to capital transfers which result in the transfer of a fixed asset, or the forgiveness of a liability, or the provision of cash linked to or provisional on, the acquisition or disposal of a fixed asset. A transfer that is current in nature to one party, but capital in nature to the other party, is treated as a capital transfer.
9.3. Table 9.1 illustrates the size of the various components of current transfers for 1996-97. It shows that the current transfers account is balanced. Other sectors is the largest component for both credits and debits, encompassing 71 per cent and 64 per cent, respectively, of current transfers.
|9.1 CURRENT TRANSFERS CREDITS AND DEBITS, 1996-97 |
|Non-life insurance transfers|
Source: Table 24 from Balance of Payments and International Investment Position, Australia, March quarter 1998 (Cat. no. 5302.0).