Net Foreign Assets - The Traditional Balance of Payments Identity

The Traditional Balance of Payments Identity

Traditional balance-of-payments accounting is that the change in the net foreign asset position equals the current account balance. In other words, if a country runs a $700 billion current account deficit, it has to borrow exactly $700 billion from abroad to finance the deficit and therefore, the country's net foreign asset position falls by $700 billion.

\begin{align} \mbox{Change in NFA} & = \mbox{Current Account} \\ \end{align}

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