Economical Distinction between Autonomous and Accommodating Items in BOP Account!
Economists distinguish between autonomous and accommodating items used in BOP.
The basic difference between the two is that whereas deficit or surplus in BOP occurs due to autonomous items, the accommodating items are taken to cover deficit (or surplus) in autonomous transactions.
(a) Autonomous items in BOP:
These refer to international economic transactions that take place due to some economic motives like earning income and profit maximisation. They have nothing to do with foreign exchange payments. Since such transactions are independent of the state of country’s balance of payment, i.e., irrespective of whether BOP is favourable or unfavourable, they are, therefore, called autonomous items.
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These items are generally called ‘above the line items’ in BOP Again, it is autonomous transactions which make deficit or surplus in BOP. BOP is in deficit if the autonomous receipts are less than autonomous payments. BOP is in surplus if the autonomous receipts are greater than autonomous pa3anents. In other words, deficit or surplus in BOP depends upon the balance of autonomous items.
Deficit in BOP account: When during the year total inflows of foreign exchange on account of autonomous transactions are less than total outflows on account of such transactions, there is deficit in BOP.
(b) Accommodating items in BOP:
These refer to transactions that take place to cover deficit (or surplus) arising from autonomous transactions. These items are also called ‘below the line items’. Because of government financing, official settlements are seen as accommodating items to keep the BOP identity.
To meet deficit, govt. may borrow from abroad or make withdrawals from foreign exchange reserves. The official settlement approach is based on the assumption that monetary authority is the ultimate financier of any deficit in BOP or the ultimate recipient of any surplus.