Current Account Deficit

Loading the player...

What is a 'Current Account Deficit'

A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services it exports. The current account also includes net income, such as interest and dividends, as well as transfers, such as foreign aid, though these components tend to make up a smaller percentage of the current account than exports and imports. The current account is a calculation of a country’s foreign transactions, and along with the capital account is a component of a country’s balance of payment.

BREAKING DOWN 'Current Account Deficit'

A current account deficit represents a negative net sales abroad. Developed countries, such as the United States, often run current account deficits, while emerging economies often run current account surpluses. Countries that are very poor tend to run current account deficits.

A country can reduce its current account deficit by increasing the value of its exports relative to the value of imports. It can place restrictions on imports, such as tariffs or quotas, or it can emphasize policies that promote exports, such as import substitution industrialization or policies that improve domestic companies' global competitiveness. The country can also use monetary policy to improve the domestic currency’s valuation relative to other currencies through devaluation, since this makes a country’s exports less expensive.

While a current account deficit can be considered akin to a country living “outside of its means," having a current account deficit is not inherently bad. If a country uses external debt to finance investments that have a higher return than the interest rate on the debt, it can remain solvent while running a current account deficit. If a country is unlikely to cover current debt levels with future revenue streams, it may become insolvent.

RELATED TERMS
  1. Current Account

    The difference between a nation’s savings and its investment. ...
  2. Trade Deficit

    An economic measure of a negative balance of trade in which a ...
  3. Balance Of Trade - BOT

    The difference between a country's imports and its exports. Balance ...
  4. Dollar Drain

    When a country imports more goods and services from another country ...
  5. Deficit

    The amount by which a resource falls short of a mark, most often ...
  6. Net Exports

    The value of a country's total exports minus the value of its ...
Related Articles
  1. Economics

    Current Account Deficit

    A current account deficit occurs when a country spends more money on the goods and services it imports than it receives for the goods and services it exports.
  2. Economics

    What does Current Account mean?

    The current account reflects the difference between a country’s savings and investments.
  3. Economics

    Exploring The Current Account In The Balance Of Payments

    Learn how a country's current account balance reflects the country's economic health.
  4. Economics

    The Pros & Cons of a Trade Deficit

    Is a trade deficit, also known as a current account deficit, beneficial or detrimental to a country's economy?
  5. Economics

    The Balance Of Trade

    The balance of trade is the difference between a country’s imports and exports. A trade deficit occurs when a country buys or imports more goods from other countries than it sells or exports. ...
  6. Economics

    Twin Deficits: Twice The Fun For The U.S

    The U.S. has been running both fiscal and current account deficits for years, but what does it all add up to?
  7. Term

    Understanding Net Exports

    Net exports are the difference between a country’s exports and imports.
  8. Economics

    What's the Balance of Trade?

    The balance of trade is the difference between the value of all the goods and services a country exports and the goods and services it imports.
  9. Forex

    Main Factors That Influence Exchange Rates

    The exchange rate is one of the most important determinants of a country's relative level of economic health, and can impact your returns.
  10. Term

    What's a Deficit?

    A deficit is the amount by which expenses or costs exceed income or revenues.
RELATED FAQS
  1. What is a trade deficit and what effect will it have on the stock market?

    A trade deficit, which is also referred to as net exports, is an economic condition that occurs when a country is importing ... Read Answer >>
  2. At what level is the current account deficit considered excessive, in terms of percent?

    Take a deeper look at the variables that impact current account deficits, and learn why not all types of deficits have equal ... Read Answer >>
  3. What is the difference between a current account deficit and a trade deficit?

    Learn the meanings of the macroeconomic terms current account deficit and trade deficit, and understand the differences between ... Read Answer >>
  4. Why do developed countries run current account deficits?

    Discover why developed countries tend to run current account deficits and why running a current account deficit is not a ... Read Answer >>
  5. What is the difference between a nation's current account deficit and its currency ...

    Learn the respective meanings of the two terms, current account deficit and currency valuation, and understand the relationship ... Read Answer >>
  6. What country holds the largest negative current account in the world?

    Learn more about the nation that currently has the highest negative current account, as well as what that means for the country's ... Read Answer >>
Hot Definitions
  1. Reverse Mortgage

    A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage ...
  2. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  3. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  4. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  5. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  6. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
Trading Center