Balance of payments deficit, also known as balance of payments deficit, means that a country's expenditure on balance of payments is greater than its income. The balance of payments deficit will lead to the decrease of foreign exchange supply and the increase of domestic foreign exchange market demand, which will increase the foreign exchange rate and decrease the local currency exchange rate. If the government takes measures to intervene, that is, selling foreign currency and buying local currency, the government must have sufficient foreign exchange reserves, which will further lead to the depreciation of the local currency. Government intervention will directly lead to the reduction of domestic money supply, and the reduction of money supply will lead to the increase of domestic interest rates, leading to economic decline and increased unemployment.

Different economists have different explanations for the reasons of the balance of payments deficit.

Monetarists believe that the deficit is purely a monetary phenomenon, which occurs when the increment of money demand is less than the increment of domestic credit level. Under the fixed exchange rate system, excessive money demand should be made up by foreign exchange surplus, while excessive domestic credit creation is reflected in deficit. If the money demand remains unchanged, the change of domestic credit level is fully reflected in the change of foreign exchange reserves.

Structuralists believe that there are three reasons for developing countries' balance of payments deficit: first, the unfavorable factors of export products. As the main export commodities of developing countries, primary products have low income demand and price elasticity. In fact, the terms of trade of developing countries have been deteriorating in recent years. Second, the sales market is unfavorable. The slow growth of market economy restricts the export growth of primary products. Third, the export cost caused by inefficiency is high, which affects the export profit.

Domestic absorption theory holds that Keynes's income and expenditure formula explains the cause of the balance of payments deficit. In a closed economy, excessive demand will lead to inflation; In an open economy, it will lead to a balance of payments deficit.

Policies to make up the balance of payments deficit can be divided into two categories: funding and adjustment.

Subsidy policies include reducing foreign exchange reserves and international borrowing policies. Subsidy policy is only applicable to short-term balance of payments deficit. The balance of payments deficit is affected by money supply and interest rate, which are determined by the base currency, which consists of domestic credit level and foreign exchange reserves. When adopting the subsidy policy, on the one hand, the financial authorities sell foreign currency and buy local currency, which makes the foreign exchange reserves decline and leads to the reduction of the base currency; On the other hand, trying to buy local currency assets and release local currency will improve the domestic credit level and cause the base currency to increase. In this way, in the process of making up the deficit, the reduction and increase of the base currency complement each other.

The adjustment policy consists of three parts: expenditure reduction policy (including tight fiscal policy and tight monetary policy), expenditure transfer policy (including depreciation policy) and direct control policy (including measures such as tariffs, quotas, multiple exchange rates and subsidies).

For the long-term fundamental balance of payments deficit, it is generally necessary to jointly adopt capital policy and adjustment policy.