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1.2. NATIONAL ACCOUNTING RELATIONS 19the balance of payments. Debit transactions arise whenever payment ismade to agents that reside abroad. Debits contribute toward a deÞcitor worsening of the balance of payments. 6SubaccountsThe precise format of balance of payments subaccount reporting differsacross countries. For the US, the main subaccounts of the balanceof payments that you need to know are the current account, whichrecords transactions involving goods, services, and unilateral transfers,the capital account, which records transactions involving real or Þnancialassets, and the official settlements balance, which records foreignexchange transactions undertaken by the central bank.Credit transactions generate a supply of foreign currency and alsoa demand for US dollars because US residents involved in credit transactionsrequire foreign currency payments to be converted into dollars.Similarly, debit transactions create a demand for foreign exchange anda supply of dollars. As a result, the combined deÞcits on the currentaccount and the capital account can be thought of as the excess demandfor foreign exchange by the private (non central bank) sector.This combined current and capital account balance is commonly calledthe balance of payments.Under a system of pure ßoating exchange rates, the exchange rateis determined by equilibrium in the foreign exchange market. Excessdemand for foreign exchange in this case is necessarily zero. It followsthat it is not possible for a country to have a balance of payments problemunder a regime of pure ßoating exchange rates because the balanceof payments is always zero and the current account deÞcit always isequal to the capital account surplus.When central banks intervene in the foreign exchange market eitherby buying or selling foreign currency, their actions, which are designedto prevent exchange rate adjustment, allow the balance of payments tobe non zero. To prevent a depreciation of the home currency, a privatelydetermined excess demand for foreign exchange can be satisÞedby sales of the central bank’s foreign exchange reserves. Alternatively,6 Note the unfortunate terminology: Capital inßows reduce net foreign assetholdings, while capital outßows increase net foreign asset holdings.