Theoretical and Descriptive Analysis: BOP as a Monetary Phenomenon
A balance of payments (BOP) deficit or surplus represents a transient stock adjustment process evoked by initial inequality between actual; and desired money stock. The monetary approach maintains that the BOP are essentially a monetary phenomenon and the root cause in the payments imbalances are the disequilibrium between the demand for and supply of money. This proposition is often called strong version of the monetary approach. As the Elasticity and Absorption approaches fail to provide the correcting measures of balance of payments deficit in the less developing countries; another approach is still available which is known as the Monetary Approach to the Balance of Payments. According to the monetary approach, the balance of payments is purely a monetary phenomenon. Being a monetary phenomenon, it can be corrected only through the monetary measures. According to the monetary approach, the balance of payments is a monetary phenomenon is related to inflow and outflow of internati