Define the official settlements balance. Is there any difference betwe

Define the official settlements balance. Is there any difference between the United States and other countries in terms of what this balance measures? How does this affect the ability of the countries to run current account deficits?

What will be an ideal response?

ANSWER

For most countries it measures international reserve changes. For the United States, it records changes in short-term U.S. liabilities held by foreign monetary agencies. This demand for dollar denominated short-term debt by foreign central banks permits the United States to finance current account deficits largely with dollars. Other countries must finance such deficits by selling foreign currency and, as a result, face a greater constraint on their ability to run deficits as they eventually run out of international reserves. Such a constraint does not exist for the United States.