Remittance - Term Overview


A remittance can generally be defined as sending cash, checks or transfers from one country to another.

A remittance can also be understood as an international transfer of money, because it's sent from one person to another, it's international because to be a remittance the destination of the money must be different from the country where it originated.

Undoubtedly, the income of foreign exchange through remittances occupies a very important place, specially in underdeveloped countries, since it's in these countries where the greatest number of emigrants are found, who go out to reside and produce in other countries where they find themselves. better job opportunities.

Indeed, remittances rank second in the inflow of foreign currency in these underdeveloped countries and are only surpassed by the inflow of foreign currency from international aid.

Therefore, countries that have a greater degree of political, social or economic instability are those that register a greater inflow of remittances, compared to countries that generally enjoy a greater degree of stability.

Why have remittances increased?

It turns out that both technology, as well as the means of communication and transport, have allowed an interconnectivity of all the countries of the world, thus facilitating the flow of people who migrate from one country to another for different reasons, particularly for study, business and work purposes.

In the same way, the need to send money from one country to another increases. These money transfers occupy a very important role within the international economy, specially in developing economies.

What should we know about remittances?

In reality, most remittances are sent by workers who have migrated to another country seeking to find better job opportunities that generate a higher level of income.

Then, the foreign exchange income produced by remittances helps to improve the quality of life of the families of these people, but also contributes to the economic development of the recipient country.

In addition, money transfers by remittances are also used by people who are engaged in business, since in some cases they have to pay salaries of employees who are hired abroad or pay invoices to partners or companies that are located abroad.

Advantages of remittances

The entry of remittances in a recipient country generates the following benefits:

1. Increase your currency income

Increasing the income of foreign exchange in a country is very important, because it allows the exchange rate to remain at an adequate price level, specially in underdeveloped countries; This implies that a certain stability in the exchange rate is achieved.

2.Reduction of poverty

Similarly, a reduction in poverty is observed, specially since the people who receive remittances have more money to spend on medical and educational services. Investments are also increased, specially in the construction market, for that reason employment opportunities are increased and living conditions are generally improved.

Disadvantages of remittances

Remittances could also have some disadvantages such as:

1. Discourage the desire to work

Above all, in households that have a considerable income from remittances, it motivates them to stop working, promoting conformity and little interest in contributing to the country's productive system.

2. Increases economic dependence

Specially in underdeveloped countries, a large percentage of GDP is made up of foreign exchange earnings, which maintains the country's growth rate. Consequently, if for any reason there is a decrease in the income of remittances, the country could see its level of economic growth affected.

To conclude, we can affirm that remittances constitute an important component of foreign exchange income in the national accounts of any country, but on a larger scale in underdeveloped countries or those that suffer any type of political, social or economic instability; since this forces its inhabitants to migrate to another country seeking to find better opportunities that they cannot find in their country of origin.

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