As the world becomes increasingly connected, more and more people need to send money abroad for any number of reasons.
But the act of transferring money from one country to another — also known as an international remittance — is not necessarily a simple task. There are ever-fluctuating exchange rates between various currencies as well as fees for transference. However, remittances have become a large part of the global economy, especially for developing countries.
A “remittance” is the transfer of money to a person or place. Most often, remittances are money transfers from one country to another, often from a foreign worker sending money to their home country.
If an immigrant moves to another country seeking economic opportunities, it only makes sense that they would want to send some of their earnings back to their country of origin to financially support their family from thousands of miles away.
How do remittances affect the global economy?
Remittances have increased exponentially in recent years due to advances in technology. Until the late 1990s, international aid was the largest financial inflow to many developing countries. Since then, remittances have exceeded that amount.
Money sent home by foreign migrant workers is now the largest financial support to developing countries. In some cases, the number of remittances coming into a developing country may actually comprise a large portion of the country’s gross domestic product (GDP); in 2015, remittances accounted for roughly 10 percent of the Philippines’ and Guatemala’s economy and around 7 percent of Vietnam’s economy.
In 2016 alone, an estimated $574 billion (USD) was sent abroad in remittances. Included in this figure is $136 billion sent from the United States to a wide variety of countries.
Remittances play a crucial role in a developing country’s economy. A prime example is their contribution to disaster relief aid, often far exceeding the amount of aid disbursed as official development assistance (ODA) from foreign governments or the United Nations.
Remittances can also encourage people in less developed countries to open bank accounts, which in turn also impacts economic development in that country.
Below you can watch economist Dilip Ratha’s TEDXTalk for more insights into the impact of remittances:
How can I send a remittance?
There are many ways to transfer funds abroad, but some methods are more costly than others. You have to be aware of currency exchange rates, transfer fees, and remittance float (the time it takes to process the money transfer). Sending money via cash or check can also cause serious delays before the money is officially transferred between parties.
Since companies such as Western Union and Moneygram do not require a bank account to send international money, many people prefer these companies. The downside is that using these methods come at a steep cost due to additional fees.
Fortunately, there are money transfer companies like Remitly that help you avoid some of the fees. Remitly gets you great exchange rates with low fees, no matter where you’re sending. We guarantee your money will be transferred with little remittance float to ensure that your loved ones receive funds as soon as possible and on time, or you get your money back.
If you’re looking for a secure, low-cost alternative to send an international remittance, you can start sending money abroad with Remitly today.