Current account definition
The current account records a nation’s global transactions such as imports and exports of goods and services, payments to and from investments abroad, and transfers such as foreign aid and remittances. Together the current account and the capital account make up a nation’s balance of payments.
Factors impacting current accounts
Two main factors impacting current accounts are interests rates and currency rates.
Lower interest rates generally encourage a rise in consumer spending on imports. If the amount spent on exports doesn’t increase as much as the amount spent on imports, a deterioration in the current account will occur.
Changes in the currency rate can affect the costs of imports and exports for a nation. An overvalued currency makes imports cheaper and exports less competitive, thereby widening the current account deficit or narrowing the surplus.