Like the international trading of goods and services that can be either exported or imported, unilateral transfers also flow in both directions. A given nation might give funds to one nation, and receive funds from another. Funds that flow to a nation are positive values in the unilateral transfer category (and balance of payments), and funds that flow from a nation are negative values.

Unilateral transfers are the one part of the current account that are not included in the calculation of the balance of trade. The balance of trade includes both the balance on services and the balance on merchandise trade and is officially termed the balance on goods and services in the balance of payments account. In addition to the current account, the balance of payments also includes the capital account, which tracks the flow of investment payments in to and out of a country.

Balance of Payments for Northwest Queoldiola

Unilateral Transfers

The chart to the right presents the hypothetical balance of payments for Northwest Queoldiola stated in terms of queolds, the hypothetical Queoldiolan currency. The balance of payments for real world countries is generally stated in terms of their domestic currencies (such as dollars for the United States or reals for Brazil).

First note that this chart contains two major sections, Current Account and Capital Account. Near the bottom of the chart is a summary Balance of the Current and Capital Accounts, which combines the two sections. At the very bottom is the overall Balance of Payments.

Highlighting the Balance on Services

Key to this present discussion are the transfer of funds in to and out of the country. The subset of the current account that tracks these flows can be highlighted with a click of the [Un Tran] button. Note that this click highlights a single line in the balance of payments chart -- unilateral transfers.

While a single line is highlighted a more detailed balance of payments accounting would show a positive value for transfers flowing into the country and a negative value for transfers flowing out. The sum, or net, of these two values generates a positive value of 5.3 million queolds for the hypothetical Queoldiolan economy. This means Northwest Queoldiola receiving more gifts and transfers from other countries that it is giving.

Foreign Aid and Birthday Presents

A portion of these unilateral transfers are certainly gifts from one person to another. Perhaps your grandmother, who still lives in the "old" country sends you $25 as a birthday present. Alternatively, a newly immigrated resident of the country sends a portion of his paycheck to help feed family members remaining back home.

However, a significant share of unilateral transfers is government aid given from one country to another. Commonly termed foreign aid, these transfers generally go from more developed or industrialized countries to lesser developed countries. Ideally the aid is a nothing more than a gift, with no strings attached, which can be used by the receiving country to advance development. However, in practice, the giving countries are prone to use the funds to achieve assorted political goals.

The Rest of the Current Account

• Balance on Merchandise Trade: This is the difference between the payments received for exports of merchandise trade to other nations and the payments made for the imports of merchandise trade from other nations. This includes only tangible goods. Once again a summary balance is provided for merchandise trade, which for Northwest Queoldiola is positive, meaning that it exports more goods than it imports.


• Balance on Services: This is the difference between the payments received for exports of services to other nations and the payments made for the imports of services from other nations. This includes only intangible services. Once again a summary balance is provided for the trade in services, which for Northwest Queoldiola is negative, meaning that it exports fewer services than it imports.