Mini-Case:Global Remittances

Presentation By: Chandra Vijay Dubey, Gaurav Maganlal Vasani, Jeff Dagg, Krishan Kamal, Varun Thakur

Presentation Roadmap

Case Briefing Definitions Facts From Case Case Questions

The case emphasizes on

elements of the current account in

the balance of payments, costs

related to remittances, top

contributing countries and controversies.

Definitions

BA combination of the fees charged at any stage of the transaction and the exchange rate used to convert the local currency into the currency of the destination country by a RSP (Remittance service provider).

Cost of RemittancesBRemittances are international transfers of funds sent by migrant workers from the country (source country) where they are working to people, typically family members, in the country from which they originated (receiving countries).

RemittancesA

Facts From Case

$414 billion was remitted in 2009, with $316 billion of that going to developing countries.

Average annual growth of 15.6% from 1970 to 2010e.

First decline was observed only during 2008-09 since 1985 but it recovered.

Remittances represent a more significant volume, for example as a percent of GDP, for smaller receiving countries, developing countries, sometimes more than 25%.

The average cost of a migrant remittance transaction was 8.89% for all corridors surveyed for the third quarter of 2010.

Question #1

The two items in the balance of payments framework that substantially relate to remittances are “compensation of employees” and “personal transfers.” Both of these are recorded in the current account.

They are not located in financial accounts because remittances are not considered to be direct investment, portfolio investment or any other investment.

Where are remittances across borders included within the balance of payments? Are they current or financial account components?

Question #2

Top remittance sending countries (2009): United States, Saudi Arabia, Switzerland, Russia, and Germany

Top recipient countries (2009): India, China, Mexico, the Philippines, and France

Remittances are an integral component of balance of payments, a “plug” to replace declining export competition and dropping foreign direct investment.

Remittances make up a negligible cash outflow from sending countries.

They represent a more significant volume as a percent of GDP, for smaller receiving countries sometimes more than 25%.

Under what conditions—for example, for which countries currently—are remittances significant contributors to the economy and overall balance of payments?

Question #3

The volume of global remittances has increased dramatically leading to increase in cost related to transactions.

Online payment systems have popped up increasing the difficulty of tracking these payments.

Possibilities of money laundering instead of sending money to families.

Why is the cost of remittances the subject of such intense international scrutiny?

Thank You!

Presented By: Chandra Vijay Dubey, Gaurav Maganlal Vasani, Jeff Dagg, Krishan Kamal, Varun Thakur