Types of invisibles
Invisibles are both international payments for services (as opposed to goods), as well as movements of money without exchange for goods or services. These invisibles are called 'transfer payments' or 'remittances' and may include money sent from one country to another by an individual, business, government or non-governmental organisations (Balance of payments and invisibles
In many countries a useful distinction is drawn between theBalance of payments problems and the invisible balance
Problems with a country's balance of trade (or balance of payments) are often associated with an inappropriate valuation of its currency, its country's foreign exchange rate. If a country's exchange rate is too high, its exports will become uncompetitive as buyers in foreign countries require more of their own currency to pay for them. In the meantime, it also becomes cheaper for the citizens of the country to buy goods from overseas, as opposed to buying locally produced goods), because an overvalued currency makes foreign products less expensive. The simultaneous decline in currency inflows from decreased exports and the rise in outflows, due to increased imports, sends the balance of trade into deficit, which then needs to be paid for by a transfer of funds in some form, either invisible transfers (aid, etc.) or capital flows (loans, etc.). However, relying on funds like that to support a trade deficit, is unsustainable, and the country may eventually require its currency to be devalued. If, on the other hand, a currency is undervalued, its exports will become cheaper and therefore more competitive internationally. At the same time, imports will also become more costly, stimulating the production of domestic substitutes to replace them. That will result in a growth of currency flowing into the country and a decline in currency flowing out of it, resulting in an improvement in the country's balance of trade. Because a nation's exchange rate has a big impact on its 'balance of trade' and its 'balance of payments', many economists favour freely