When migrants send money across borders to their families, it promotes economic activity and supports incomes in some of the poorest countries of the world. Annual cross-border remittances are running about US$600 billion, three quarters of which flow to low- and middle-income countries. To put that number into perspective, total development assistance worldwide is $150 billion.
Yet, despite the remarkable technological advances of recent decades, remittances remain extremely expensive. On average, the charge for sending $200―the benchmark used by authorities to evaluate cost―is $14. That is, the combination of fees (including charges from both the sender and recipient intermediaries) and the exchange rate margin typically eats up fully 7% of the amount sent. While it is less expensive to send larger amounts, the aggregate cost of sending remittances in 2017 was about US$30 billion, roughly equivalent to the total non-military foreign aid budget of the United States!
In this post, we discuss remittances, why their costs remain high, and what might be done to lower them.Read More