A:

The current account is one of the main components of the balance of payments, which records the monetary transactions between one country and the rest of the world. Items recorded from the current account include goods and services from trade, dividends, salaries and current transfers. A current account surplus results from one country receiving more current account inflows than it has outflows, while a current account deficit arises from more outflows than inflows. The consequences of current account deficits depend on a huge variety of factors, so there is no universal level at which a deficit could be considered "excessive."

During the 17th and 18th centuries, the western world operated on a gold standard and economies were dominated by an economic philosophy known as mercantilism; exports were considered extremely good and imports extremely bad. Since all global currencies were exchangeable with gold and nearly all major international trade was performed with gold transfers, a current accounts deficit had a much more meaningful impact.

In a world of fiat currencies and mostly free-floating exchange rates, a current accounts deficit no longer has as many potential negative consequences. Current account deficits equate to capital account surpluses, which help the long-term investment and growth of the country running imports more than exports.

However, this relationship is dependent on the creditworthiness and total level of capital risk in the country running the trade deficit. Without being able to attract foreign capital, a current accounts deficit could eventually lead to rapid devaluation of assets held by foreign investors.

In terms of percentage, current account deficits are never very large. In the 21st century, the United States has carried one of the largest current account deficits in the world at around 7%. Given this reality, the "excessive percentage" threshold for a current account deficit would probably be much higher than 7% for the U.S. economy.

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