People go from one country to another in search of better opportunities. Some people migrate because their skills are high in demand, while others cross borders because of labour arbitrage. In both cases, the country of origin benefits from inward remittances. However, before we try to understand how immigrant remittances help the national economy, here are some figures:
According to a World Bank Report, India-bound inward remittances reached $80 billion in 2018. Next came China ($67 billion), followed by Mexico and the Philippines ($37 billion each). In the same year, international remittance to developing countries was expected to touch $528 billion, and total remittances to developed economies were $689 billion. However, in 2019, the World Bank expects inward remittance figures to slow down for a variety of reasons.
Let’s take India as an example. International remittances constitute nearly 2.7% of the country’s Gross Domestic Product (GDP).
So, how does such inward transfer of money help the national economy?
According to the Ministry of Overseas Indian Affairs, there are nearly 25 million Non-resident Indians (NRIs) who send foreign exchange back home. Most of them live in the Middle East, the US, the UK, and some countries in south-east Asia.
The contribution of these NRIs towards India’s national economy is indeed significant. For instance, the foreign exchange that they send constitutes nearly 20-25% of the country’s total forex reserves. While India is not overly dependent on these reserves, having this much of forex in the vault of the Reserve Bank of India (RBI) is undoubtedly useful.
Inward remittances help national economies in many ways:
1. Coping with emergencies
When people send money home, this cash helps their families cope with natural crises and disasters. Many countries in south-east Asia are prone to cyclones, tsunamis, and earthquakes. When such disasters strike, people living there lose their land, houses, and other sources of income; left with little or no backup support. In these conditions, foreign remittances help the devastated families cope with their losses and rebuild their lives.
A prime example is the Indian state of Kerala, which experienced massive floods in August 2018. This natural disaster caused the loss of several hundred lives. The economy of Kerala tanked because of the substantial damage to the state’s infrastructure. In this scenario, Kerala received help from nearly 2.4 million natives who live and work abroad. The 2018 rise in Indian remittances to $80 billion may be attributed to these remittances.
2. Keeping the currency stable
When overseas people send money home in large amounts, they also help keep the domestic currency stable. For instance, remittance flows to India, in 2018. That year, the INR was the worst-performing currency in Asia. One reason behind its dismal performance was the rise in oil prices and the country’s dependence on oil imports. However, thanks to foreign remittances, the rupee was able to bounce back.
When there is a scarcity of foreign exchange in the domestic market, cross border remittances shore up the domestic currency – as it was in the case of the Indian rupee.
3. Helping imports
When a country has adequate forex reserves, it doesn’t have to worry about foreign trade. It can use its forex reserves to buy whatever it wants without having to worry about creditworthiness. So, when non-residents send money home, they add to the foreign exchange reserves of their mother country.
4. Demand generation
Many countries, including the Philippines, use remittances as a means to generate employment and demand. When there are large sums of money coming into the country through authorised banking channels, it spurs demand for certain goods and services.
According to industry articles, households that receive remittances use the money to buy goods and services. This purchase indirectly improves the local economy and also the industry to which those goods belong. For example, if a certain number of households in Manila that receive remittances from the US purchase a vast number of cars, the local car industry prospers. It may be assumed that at that moment in time, the Philippines would have a remittance exchange rate that makes currency exchange easier, faster, and more profitable.
Having understood the importance of remittances, let’s examine the key characteristics of a good remittance company.
- If you are looking out for a good remittance company, find out its remittance exchange rate. When you hand over $100 to the cashier to transfer from (say) the US to the Philippines, enquire what amount would be deducted as fees.
- A competitive online remittance service should also be fast and efficient. It makes no sense to send money home via a service that takes a week to deliver.
- Lastly, look for an international remittance partner that is trusted and reputed. In your rush to transfer money to your loved ones, never go to unscrupulous operators.
With Xpress Money, you can avail competitive transfer charges and efficient service to over 170 countries, thanks to an extensive network of over 200,000 agent partner locations. Speed and efficiency are the most crucial factors to keep in mind while looking to send money home. Right next to that consideration is the factor of currency conversion rates. One should patiently observe the rates and check the best options before transferring any money overseas. Do not make hasty decisions!
For any help regarding international money transfer, reach out to Xpress Money. We are always happy to help. Leave us a comment, and we will get back to you at the soonest.