Question

How does the official settlement balance ensure that the ‘fundamental balance of payments

identity’ holds?​

Answer 1

• Official settlement accounts are used in international balance of payments accounting, and represent the current account and the capital account of central banks. ... When there is either a balance of payments deficit or surplus, inflows of reserve assets or outflows of reserve assets bring the ledger back into balance.
• The balance of payments always balances. Goods, services, and resources traded internationally are paid for; thus every movement of products is offset by a balancing movement of money or some other financial asset.

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