Looking for what are accommodating transactions in Balance of Payments (BoP). It’s meaning, definition, concepts, examples as per the syllabus of class 12 CBSE and other states Board.
I have explained it in detail.
This topic is concerned with the Balance of Payments chapter of macroeconomics class 12.
What do you mean by Accommodating transactions in BoP Class 12
In short, accomodating transactions (items) are those transactions which are undertaken just to cover the deficit or surplus due to autonomous transactions.
Let’s understand it with a simple example
suppose, a deficit of BoP due to autonomous transactions is $100. It implies the outflow of foreign exchange is more than the inflow by $100.
So we need an extra $100 to meet the foreign exchange outflow.
The first option is to withdraw the foreign exchange from the central bank reserve.
As the second option, we can opt for borrowing from foreign institutions or governments.
In both cases, the motive is just to cover the deficit due to autonomous transactions in BoP.
Both above-given examples of transactions are accomodating transactions.
On the other hand.
If there is a surplus due to autonomous transactions by $100.
We can deposit it in the foreign exchange reserve of the central bank to cover such surplus.
Note:- Accommodating transactions cover the surplus and deficit of BoP due to autonomous transactions. The final balance of BoP is always Zero
Definition of Accommodating Transactions
Accommodating items refer to the transactions that are undertaken to cover the gap in the balance of payments, i.e, such transactions are undertaken to cover deficit or suplus in autonomous transactions.Sandeep Garg
BoP transactions undertaken to cover deficit (or surplus) in autonomous transactions are called accommodating transactions.S.K Aggarwal
Accommodating items refers to such transactions which are undertaken by the central bank of a country with a view to correcting BoP imbalance and restoring BoP equilibrium.T.R Jain
What are below the line items in Balance of Payments
Ofen the accommodating items are not reflected as an element of BoP accounts. These are, therefore ‘below the line items.
Examples of accomodating transactions in Balance of Payments
- decrease and increase in the official foreign exchanger reserve of Central Bank.