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The intermediation of international capital flows

Robert St. Clair, Christine Tether, Bruce D. White

The extent of international investment in New Zealand, and of New Zealand’s external debt, have been the subject of much discussion of late – against the backdrop of the large size of New Zealand’s current account deficit, and the financial crisis that has occurred in a number of East Asian economies. In the March Bulletin, an outline was provided of the balance of payments accounting framework used to record the flows of goods, services, and investment income across the border, and the counterpart flows of capital. This article takes the analysis of the capital account a step further, by: • explaining how the capital account transactions are recorded in stock, or ‘balance sheet’ terms; and • providing some background on the different forms that external capital takes, and on the different channels through which it is intermediated in and out of New Zealand.