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. Account Settlement

    An account settlement generally refers to the payment of an outstanding ...
  2. Settlement Date Accounting

    Settlement date accounting is an accounting method that records ...
  3. Current Account Surplus

    A current account surplus is a positive current account balance, ...
  4. Authorized Settlement Agent

    An authorized settlement agent is a bank that is authorized to ...
  5. Account Activity

    Account activity generically applies to whenever a movement of ...
  6. Account Balance

    An account balance is the amount of money in a financial repository, ...
Related Articles
  1. Investing

    Understanding Capital And Financial Accounts In The Balance Of Payments

    The current, capital and financial accounts compose a nation's balance of payments, indicating the state of its economy and economic outlook.
  2. 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.
  3. 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.
  4. Investing

    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.
  5. Personal Finance

    The 6 Different Types of Checking Accounts

    Know exactly what you are getting before you open an account with this guide to checking account options.
  6. Personal Finance

    Debt Settlement: A Guide for Negotiation

    Negotiating a settlement should encourage everyone to try, find out how you can negotiate your way to a lower debt load by paying up front.
  7. Personal Finance

    Handling High-Yield Savings Accounts

    Is a high-yield savings account right for you? Read on to find out what they have to offer.
  8. Personal Finance

    Accountant: Job Description & Average Salary

    Discover what the job description of an accountant entails, along with education and training, salary and skills necessary for success.
  9. 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?
  10. IPF - Banking

    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.
RELATED FAQS
  1. What's included in a country's balance of payments?

    Learn about the many types of transactions that are recorded in a country's balance of payments, including the current, capital ... Read Answer >>
  2. What does a negative balance in the capital account mean?

    Understand what a country's capital account represents and the significance of a negative, or deficit, balance in the capital ... Read Answer >>
  3. 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 >>
  4. Which is more important to a nation's economy, the balance of trade or the balance ...

    Learn how to differentiate between the balance of trade and balance of payments for international trade and why the balance ... Read Answer >>
  5. 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 >>
  6. How will debt settlement affect my credit score?

    Understand how debt settlement typically works and find out how sometimes the best option to eliminate an outstanding debt, ... Read Answer >>
Trading Center