Reviewed by Sep 28, 2020| Updated on
What are Current Transfers?
Current transfers are current account transactions in which a resident entity in one country offers economic value to a non-resident entity, such as real property or financial product, without obtaining something in return of the same economic value.
Understanding Current Transfers
Current transfers are transactions in which the originator does not receive a "quid pro quo" in exchange; this lack of economic value on one side is portrayed by one-sided transactions in the balance of payments, called transfers.
Current transfers affect the current account and are different from the capital transfers included in the capital and financial account. Current transfers cover remittances, donations, tax payments, foreign aid, and grants to staff.
Current transfers cover all transfers that do not characterise as capital transfers:
- Transfers of fixed-asset ownership
- Fund transfers related to the purchase and sale of fixed assets
- Forgiveness of claims by creditors without receiving counterparts in return
Types of Current Transfers
The two important types of current transfers are general governments and other sectors.
General government transfers include: 1. Transfers in cash or in-kind funded by international cooperation between governments of various economies, or between government and international organisations 2. Cash transfers between governments to fund recipient government's current spending 3. Contributions of food gifts, medical assistance, etc. as relief efforts after a natural calamity 4. Certain military equipment as gifts 5. Current income and wealth taxes, and other transfers, such as contributions to the social security
Similarly, other sector transfers include: 1. Workers' money transfers by immigrants (someone staying more than a year in another nation) who are considered residents of many other countries 2. Transfers made for disaster relief in cash or kind 3. Periodic contributions to charitable, scientific, cultural, and religious organisations 4. Non-life insurance premium and claims
In general, the IMF's Balance of Payments Manual sets the accounting conditions for current transfers. While current transfers in the balance of payments are categorised separately from goods, services, and revenue due to their one-sided nature, the distinction between a transfer and a routine transaction is not always clear.
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