Why might countries aim for a current account surplus?

Countries might aim for a current account surplus to increase national savings, reduce reliance on foreign capital, and strengthen their economy.

A current account surplus occurs when a country's total exports of goods, services, and transfers are greater than its total imports. This essentially means that the country is a net lender to the rest of the world, as it is exporting more than it is importing.

One of the main reasons why countries aim for a current account surplus is to increase national savings. When a country has a current account surplus, it means that it is saving more than it is investing domestically. This surplus of savings can be used to invest in other countries, earn a return, and further increase national wealth.

Another reason is to reduce reliance on foreign capital. Countries with current account deficits need to borrow from other countries to finance their imports. This can lead to a build-up of foreign debt, which can be risky if the country's currency depreciates or if international interest rates rise. By contrast, countries with current account surpluses are less reliant on foreign capital, which can make their economies more resilient to external shocks.

Furthermore, a current account surplus can strengthen a country's economy in several ways. Firstly, it can lead to job creation in export industries, which can reduce unemployment and boost incomes. Secondly, it can increase foreign exchange reserves, which can help to stabilise the country's exchange rate and provide a buffer against financial crises. Lastly, it can improve the country's credit rating, which can lower borrowing costs and stimulate investment.

However, it's important to note that a current account surplus is not always beneficial. If it is too large or persistent, it can lead to an overvalued currency, which can hurt export industries and lead to economic imbalances. Therefore, while countries might aim for a current account surplus, they also need to manage it carefully to ensure that it supports sustainable and balanced economic growth.