I've been spending a lot of time explaining to my Latin American Politics class why exchange rates matter. Here is an interesting example of how they affect remittances:
Migrants living in the U.S. are sending more money home to take advantage of the weakening peso, which slid to a more than two-year low on Sept. 23, said Sergio Luna, chief economist at Citigroup’s Banamex unit. Historically more than 95 percent of remittances to Mexico come from the U.S., according to the Washington-based Inter-American Development Bank.
“It would seem to signal that they’re making an effort to send resources, given the advantage in the sense that a dollar is buying more pesos,” Luna said in a telephone interview. “In a certain sense, the migrants are hedging. Perhaps they’re taking advantage of an arbitrage opportunity. At the end of the day, this should serve to limit the effect of depreciation of the peso.”
We had been hearing for a few years about remittances flattening out, but earlier this year they picked up again so sustaining this is good news. Of course, in addition to being a reflection of the exchange rate, remittances are a reflection of the U.S. economy:
The surge in remittances indicates more Mexican workers in the U.S., particularly in the construction industry, are finding work, said Alfredo Coutino, Latin America director at Moody’s. Construction spending in the U.S. increased in September for a second month after reaching an 11-year low in March, a Commerce Department report showed on Nov. 1. The U.S. economy, the destination of about 80 percent of Mexican exports, expanded at the fastest pace in a year in the third quarter.What it also likely means is that we will see an uptick in border crossings, both legal and illegal.