Imaginary example: 1 Economy – Two villages – Same currency. Village 1 has current deficit relative to village 2. Does it not run out of cash at some point?

When a country has a current account deficit, exchange and interest rate change, and those “funds” come back in the economy either by borrowing or via investment (capital account surplus). What happens when there is common currency and exchange rates/interest rates do not change? For instance, how does the ECB allocate Euros from those countries who have surplus into the countries that have deficit?

Let’s say a foreign billionaire builds a huge hotel in New York, investment of 2billion dollars. Does this automatically mean that USA's current account deficit will increase by 2billion?

recall: current account deficit = capital account surplus

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