Foreign Money Exchange - EFFECTS OF REMITTANCES TO THE RECIPIENT COUNTRY

The transfers of money through a foreign money exchange rates institution sent by migrant workers from the country they are working to their family members back home are called remittances. The money transfers through a foreign money exchange rates institution are really expected to continue to grow and it has contributed tremendously to the economic growth of the receiving countries.

Remittances in Latin & Central America

Money sent from the United States to countries in Latin America through foreign money exchange institutions in various locations has grown in the past years with estimated growth rate between seven to ten percent per year. The total has grown to around $23 billion dollars in 2001 from $21 billion dollars in 2000. In the 1990s, money sent through foreign exchange money institution has grown by 20% annually.

Because of this growth, this becomes one of the reasons why issues regarding remittances are starting to receive much attention from people who are working for international development. It is also now the reason why the United States needs to review, consider, and revise its policies in terms of money transfers through foreign exchange institutions. It is noted that the remittances are actually sent by one of the poorest in the United States wherein sending the money through foreign exchange institutions back to their families in their home country is their top priority.

An immigrant actually sends around $200 each month on an average basis through a foreign exchange institution. However, there is also a wide variance among the different groups. Some immigrant groups are sending more than $1000 dollars through a foreign exchange money institution. Mexico is the major recipient of remittances which obtained more than $9 billion dollars in 2001. This is actually not surprising since Mexicans are the largest Hispanic group in the United States. On the contrary, the remittances issue is not just a Mexican issue since money sent through foreign exchange money institutions are equally important throughout Central America.

In Central America, remittances account for about a quarter of the Foreign Direct Investment, it is a critical source of foreign money exchange, and also account for more than ten percent of the Gross Domestic Product in Nicaragua, Haiti, Jamaican, Ecuador, and El Salvador. The remittances through foreign money exchange institutions received by El Salvador which is almost $2 billion dollars accounts to more than a quarter of its Gross Domestic Product.

For Nicaragua, it accounts for twenty four percent of its Gross National Product. The Guatemalans in the United States sent nearly $700 million dollars back to their country in 2001 through foreign money exchange institution.

Advantages of Remittances through Foreign Money Exchange Institution

There are several advantages of remittances. These are:

• It benefits the local economy of the receiving country. Although the amount sent through foreign money exchange institution to the home countries of the migrants are huge, its effects/amounts are actually multiplied due to the fact these remittances are spent on several sectors including health care and other basic needs. A chunk of these remittances are also invested in several industries stimulating retail sales and employment which actually feeds the economic productivity of the country.
• It Avoids corruption in projects. One of the major concerns about major developments sponsored by large organizations like USAID or World Bank is that these projects actually have to go through several channels which helps create a culture of corruption. However, if a beneficiary directly receives remittances through a foreign money exchange institution rather than going through several (government) agencies, then it literally cuts the corruption culture/channel down.
• It has a built in accountability onto the recipients. Large scale aid programs have difficulties in securing and monitoring accountability of the receiving beneficiary. However, in remittances sent through a foreign exchange money institution, low income workers in the United States will stop sending money home if they know that it is just being wasted.
• It counters economic struggles. When a migrant country’s economy worsens, the migrant worker tends to send more money through a foreign exchange money institution back home which in effect helps the economy to stay afloat until they can recover. In contrast, this is happening even without the direct help of the United States Government, and is far better than the loans provided by the International Monetary Funds to struggling countries/ economies, since these loans actually burden the recipient country with large debts and also with the “strings” attached which will force the country to do unnecessary reforms.

Recommendation

Money transfers sent by migrant workers through an institution of exchange for foreign money to their home countries clearly have a positive impact to the recipient country. Since, there are a lot of migrant workers in the US especially coming from the Latin America, it is hoped that the US will review its policies regarding foreign exchange money market treasury operations, and understand how it can take advantage of these trends to help build a more prosperous and democratic United States. There have been several changes in the policy of the US which will help achieve this goal.

One is the Wire Transfer Fairness and Disclosure Act introduced by Honorable Luis Gutierrez which obliges more disclosures by foreign money exchange institutions in doing foreign money exchange transactions. This bill should be passed in order to protect the migrant workers from exuberant charges asked by money transfer companies. Once the migrant workers in the US are protected, this will surely ensure a more productive US economy.

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