The balance of payments, or BOP, is a measurement that calculates payments from one country to all other countries. The BOP is typically measured quarterly and at the end of the calendar year.

A number of transactions are included in calculating the BOP. These include the country's imports and exports of goods and services; payments and liabilities to foreign countries, or debits; credits received from foreign countries, reflected as credits; and financial capital and transfers.

Ideally, the BOP should be balanced; in other words, the debits and credits should match for a given time period. However, this is rarely the case. By examining the country's debits to and credits from other countries, analysts can determine how the country is doing in terms of surplus or deficit, and in which areas. It can also pinpoint discrepancies for rectification or further examination.

Three categories make up the BOP: the current account, the capital account and the financial account. The sum of these categories, along with allowance for any errors and omissions, is called the change in official reserve account. The BOP runs on the assumption that a country can only consume more than it produces if it is receiving goods from outside (foreign) sources.

Each of the three categories that are summed to determine the BOP has its own subcategories, as outlined briefly below:

International capital transfers are recorded in the capital account. Physical assets, including land, and non-produced assets, such as mines from which to extract metals or gems, are included in this tally. So are monetary transactions arising from immigration or emigration, ownership transfer on fixed assets, gift or inheritance taxes, death levies and goods transfer.

The financial account comprises international money flow from real estate, business, stocks and bonds, as well as government-owned and foreign-owned assets.

Finally, the current account keeps track of the flow of goods and services, and public and private earnings on investments. These calculations include credits and debits on raw materials and manufactured goods, tourism, transportation and various royalties.

Calculation of the BOP as a whole can be tricky. The main difficulty is the fluctuating values in one country's currency versus that of another. It is possible to rectify a deficit in the current account with funds from the capital account if there is a fixed asset outside the country, the amount is then considered a capital account outflow. Via sale of the attendant fixed asset,  the account deficit is then funded.

It was only relatively recently that this system was put into place. Until World War II, central banks were linked by a system that redeemed "hard" currency in gold. This system gave way to the International Money Fund and Bank for International Settlements institutions, with the U.S. dollar nominally redeemable in gold. As of the 1970s, this redemption was no longer in place; today's analysts generally consider the current system to be based on oil.

The U.S. has been running a trade deficit fairly steadily since the 1970s, with surplus showing only during times of economic recession.