What is an 'Official Settlement Account'

An official settlement account is a type of account used in balance of payments accounting to keep track of central banks' reserve asset transactions with one other. The official settlement account keeps track of transactions involving gold, foreign exchange reserves, bank deposits and special drawing rights (SDRs). Essentially, this account keeps track of transactions related to international assets that are transferred among nations to settle either a balance of payment deficit or surplus.

BREAKING DOWN 'Official Settlement Account'

The account types used in balance of payments accounting are the current account and the capital account. The current account keeps a record of a country's imports and exports of goods, services, income and transfers, and whether the country is a net creditor or net debtor. The capital account records the change in foreign and domestic investments, government borrowing and private sector borrowing. When there is either a balance of payments deficit or surplus, inflows of reserve assets or outflows of reserve assets bring the ledger back into balance. This is recorded in the official settlement account.

Monitoring an Official Settlement Account

Nations keep an eye on the official settlement account to gauge their economic health in the global economy. If there are continual outflows of reserve assets for a country, it means that its competitiveness in producing exported goods is relatively weak, or its business environment is not as attractive as that offered by other countries for direct foreign investment. A nation running chronic current account deficits may then formulate policy prescriptions to improve the quality of its goods for export, or seek exchange rate adjustments to make their exports more price competitive. It also may try to create better conditions for international companies looking to build new factories abroad. Tax incentives, infrastructure projects and workforce training programs could be promoted by a country to address unwanted outflows recorded in its official settlement account.

RELATED TERMS
  1. Current Account

    The current account records a nation's transactions with the ...
  2. Account Settlement

    An account settlement generally refers to the payment of an outstanding ...
  3. Settlement Period

    A settlement period is the time between the settlement date and ...
  4. Capital Account

    A national account that shows the net change in asset ownership ...
  5. Settlement Bank

    A settlement bank is the last bank to receive and report the ...
  6. Trade Deficit

    A trade deficit occurs a country's imports exceeds its exports. ...
Related Articles
  1. Insights

    What Is The Balance Of Payments?

    Learn about the balance of payments, and how it helps countries to track how much money is coming in and how much money is going out.
  2. Personal Finance

    Current Account Deficits: Government Investment or Irresponsibility?

    Deficit can be a sign of trouble for some countries, and of health for others. Find out what it means when more funds are exiting than entering a nation.
  3. Personal Finance

    A guide to debt settlement

    Find out how you can negotiate your way to a lower debt load by paying up front.
  4. IPF - Banking

    Handling High-Yield Savings Accounts

    Is this the savings route for you? Read on to find out what these accounts have to offer.
  5. Insights

    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?
  6. Personal Finance

    Debt Settlement: Cheapest Way to Get Out of Debt?

    Debt settlement is not for everyone, but for those seriously in debt it may prove an effective means of solving the problem.
  7. Investing

    Foreign savings accounts: Should you open one?

    Find out whether opening a savings account in a foreign bank might make sense for your money. Learn the pros and cons – as well as how to establish one.
  8. Managing Wealth

    Profit From Unwanted Life Policies With Life Settlement

    With a life settlement you could cash in on your life insurance policy, using the money for other things.
RELATED FAQS
  1. What is the difference between the current account and the capital account?

    Learn how to differentiate between the capital account and the current account, the two components of the balance of payments ... Read Answer >>
  2. What is a trade deficit and what effect will it have on the stock market?

    Learn what is a trade deficit is, also known as net exports, and what effect they have on the stock market. 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 ... Read Answer >>
  4. Is a current account deficit good or bad for the economy?

    Take a deeper look at the nature of a country's current account balance, and see why trade deficits are neither good nor ... Read Answer >>
Hot Definitions
  1. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  2. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
  3. Enterprise Value (EV)

    Enterprise Value (EV) is a measure of a company's total value, often used as a more comprehensive alternative to equity market ...
  4. Relative Strength Index - RSI

    Relative Strength Indicator (RSI) is a technical momentum indicator that compares the magnitude of recent gains to recent ...
  5. Dividend

    A dividend is a distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.
  6. Inventory Turnover

    Inventory turnover is a ratio showing how many times a company has sold and replaces inventory over a period.
Trading Center