Posted in Finance, Accounting and Economics Terms, Total Reads: 92
Definition: Creditor Nation
Creditor Nation refers to those countries who have more investment in other countries than what the other countries have invested in them. The country provides funds or credits money to the other economies. The country is creditor nation when it is sufficient enough to finance itself as well as invest in other countries largely as well.
It is measured by net international investment position i.e. the difference between the countries assets outside and its liabilities. Liabilities can be both government debts as well as private debts which are the people’s debt even the assets can be hold by both government and private outside the country. The creditor nation has positive net international investment position.
Such countries have positive balance of payment. The country has more international assets than liabilities so the country’s financial account in Balance of payment shows negative balance. Since the money is leaving more than what actually it is coming in. But such countries have positive current account in Balance of Payment i.e. it involves the returns on what is invested outside. So since large investments are done in different countries thus returns on them makes current account positive and thus the Balance of Payment as a whole positive.
Creditor country is different from debtor country in such a way that debtor country has more liabilities than assets in other countries i.e. it uses foreign money to meet the consumption and is not able to invest in other countries so much. Such countries have negative Net international investment position.
Some examples of creditor countries are Japan, Germany, Singapore etc. and Some examples of debtor countries are USA, Australia, Spain etc.
USA have shifted from being the biggest creditor country to the biggest debtor country. As people are investing more in the country as its one of the safest economy and strongest economy.