Basic Balance

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DEFINITION of 'Basic Balance'

An economic measure for the balance of payments that combines the current account and capital account balances. The basic balance represents an alternative approach to the surplus or deficit for the balance of payments under pegged exchange rate systems.

BREAKING DOWN 'Basic Balance'

Economists use the basic balance to help determine long-term trends in a country's balance of payments. The measure is less sensitive to short-run fluctuations in the interest or exchange rates, providing insight for the long term. The basic balance incorporates international investment fluctuations from the capital account, making it more responsive to long-term changes in a nation's productivity.

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