What is a 'Current Account Surplus'
A current account surplus is a positive difference between a nation’s savings and investment. A current account surplus indicates that a nation is a net lender to the rest of the world, in contrast to a current account deficit, which indicates that it is a net borrower. The current account is the sum of the trade balance (exports less imports), net income from abroad and net current transfers; as the trade balance is generally the largest of these components, a current account surplus usually implies that the nation is a large exporter and has a positive trade balance. A current account surplus increases a nation’s net assets by the amount of the surplus.
BREAKING DOWN 'Current Account Surplus'
Nations with large and consistent current account surpluses are typically exporters of manufactured products or energy. With manufactured products, these export-oriented nations either follow a policy of mass-market production – like China – or have a reputation for top quality, like Germany, Japan and Switzerland.
In 2012, the top ten countries with the biggest current account surpluses were – Germany, China, Saudi Arabia, Kuwait, Netherlands, Norway, Russia, Switzerland, Qatar and Japan. More than half of that list comprises nations that are among the world’s largest exporters of oil and gas.
These current account surpluses are used to finance current account deficits in other nations. In 2012, the nations with the biggest current account deficits were the U.S., the U.K, India, Canada, France, Australia and Brazil. China, which is by far the biggest exporter to the U.S., uses its huge dollar surpluses to buy U.S. Treasuries, and as of November 2013, owned $1.32 trillion or about 23% of the total issued.
A nation with consistent current account surpluses may face upward pressure on its currency. Such nations may take steps to stem the appreciation of their currencies in order to maintain their export competitiveness. Japan, for instance, usually intervenes in the foreign exchange market when the yen is rising by buying large amounts of dollars in exchange for yen. China, on the other hand, has its yuan pegged to the US dollar. With China’s trade deficit with the U.S.