The current account includes visible trade (imports and exports of goods); invisible trade (payments and receipts for services such as shipping, insurance and tourism); private transfers, such as remittances from migrant families, interest and dividend payments; and official transfers, such as debt interest and payments to international organizations.
However, the capital account includes long-term capital flows (these, plus the current account balance, are sometimes known as the 'basic balance'); and short-term autonomous capital flows, excluding government transactions for balance of payment purposes.
The combined current account and capital amount are balanced--- total inflows must equal outflows--- by changes in a country's reserves, borrowing from (or lending to) international institutions, and foreign currency borrowing (or lending) by the public sector.
Now, the modern approach includes large deficit financing, inflationary money supply policies and general interference in the economic life of the community.
A currency that has been debased buys fewer foreign goods and services, because it has fallen in value against other currencies; its lower value also increases costs at home, and leads to lower standard of living. Government refusal to accept that a current account deficit should be fully translated into a lower standard of living leads to huge borrowings.
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