<p>I often hear phrases like country XYZ "finances its current account deficit through flows in its financial account". i have a tough time understanding this idea of "financing" a current account deficit and why it happens with certainty.</p>

<p>i understand there is an identity that says: current account + financial account + capital account = 0. so, if the first term is negative than the sum of the second two must offset, and i suppose that is what is meant by financing - but it is not intuitively clear to me why this must be the case</p>

CC BY-SA 3.0
2016-12-01T16:12:22.610Z
Shouldn't be the sentence read like this  : 
"When a country runs a current account deficit, it is building up liabilities to the rest of the world that are financed by flows in the financial account."
mootmoot
CC BY-SA 3.0
2016-12-02T02:59:58.897Z
yes, sure - but what precisely does this mean?
user11302
<macroeconomics><balance-of-payments>
help understanding the "financing" of the current account
user11302
# help understanding the "financing" of the current account

(Asked by: username_0 on 2016-12-01)

I often hear phrases like country XYZ "finances its current account deficit through flows in its financial account". i have a tough time understanding this idea of "financing" a current account deficit and why it happens with certainty.

i understand there is an identity that says: current account + financial account + capital account = 0. so, if the first term is negative than the sum of the second two must offset, and i suppose that is what is meant by financing - but it is not intuitively clear to me why this must be the case

**Tags:** macroeconomics, balance-of-payments
> **Comments:**
> **username_1**: Shouldn't be the sentence read like this  :  "When a country runs a current account deficit, it is building up liabilities to the rest of the world that are financed by flows in the financial account."  
> **username_0**: yes, sure - but what precisely does this mean?  

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## 0 answers

