What is the Accommodating Item in the Balance of Payments?

Balance of payments accounts are constructed using a double-entry accounting principle such that total credits equal total debits. Modelling each entry independently will not guarantee this equality. It is therefore important to identify the counterpart entries or 'accommodating' items that ensure that total credits equal total debits. This short paper identifies the accommodating item for the UK by presenting institutional evidence on the means of payment for international transactions. The paper contributes to the debate about whether the net overseas assets of banks are determined by the non-bank private sector or by the banks themselves. It also sheds light on statistical attempts to measure the volatility of various investment flows. The conclusions of the paper are likely to apply to any developed country with a well-developed banking system.