Tuesday, December 02, 2008

Remittances and exchange rates

There is more or less constant news about how the dollar amount of remittances going from the U.S. to Latin America is declining, which of course affects Latin American economies. This AP article, however, makes an excellent point. The dollar is getting stronger, so it is buying more in Mexico. As a result, the drop in remittance dollars may not be as dire as generally viewed:

The U.S. dollar has gained 34 percent against the peso since Aug. 1 as investors shed developing world assets and fled to the relative safety of the greenback. That stronger dollar means money sent home buys much more in Mexico -- a wage hike of sorts for the relatives of migrants lucky enough to still find jobs in the U.S. or for migrants using U.S. earnings to buy property back in Mexico.

In addition, the Mexican Central Bank estimates that remittances from the U.S. to Mexico actually increased 13% when comparing October 2007 to October. Essentially, once migrants began to see how much the dollar could buy, they had renewed incentive to go to the U.S. or stay in the U.S. and continue sending money back.


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