COVID-19 and remittances: Send money now or later?

COVID-19 and remittances: Send money now or later?

Without a doubt, coronavirus is having an ever-growing impact on the global economy. What started first as “China’s problem” quickly grew into a global pandemic, with citizens, companies and governments forced to make tough and often unprecedented calls. As the deadly virus permeates the globe, protocols and policy measures are escalating. Countries are rushing to shut their borders, issue shelter-in-place orders and wait coronavirus out. What about families that are split between quarantine zones?

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Should You Send Money Now Or Should You Wait?

Travelers and expats who are separated from their families by tightening borders are not exempt from asking the million-dollar question: what should I do with my money? There are many situations where families may find themselves spread far thinner than they imagined they would be a month or two ago. Aside from the typical migratory family, where one or two members are living and working in a different country and sending money home; there are also families split by quarantines with members trapped in foreign countries with international movement slowed down or outright restricted.

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We can split these types of situations into two categories depending on which way the money is flowing. Situation A encompasses families where the primary earner in the family is split from the rest, perhaps due to living abroad to make more money that would typically be sent back home to support their loved ones. Situation B includes families that have non-earning family members stuck away from home, whether as a student, on vacation or for medical reasons.

In both these scenarios, the impact of social distancing, slowing or frozen financial markets and in many cases, unemployment, means making every dollar sent count. You need to explore your options before sending money as the more fees you pay means your loved ones will have less to spend.

Impact Of QE On Forex Values

There is a case to be made for each situation to send money now instead of later, but individuals in each category should pay close attention to the exchange rates of the country they are sending from to the country they want to remit to, especially when many central banks are implementing quantitative easing and governments are announcing unprecedented stimulus and support packages, which can weigh heavily on forex values. Of course, this assumes that remitters have a choice of when to send. In reality, many remitters will have no choice but to support those abroad who rely on regular payments for basic needs or to rush transfers for those that have lost income.

During past recessions, there is data to support the idea of immigrants drawing on savings from their home country to continue their lives in the country they migrated to, often causing a reversal in remittances for a period of time. In the past, these small pockets of reverse remittances were typically experienced between the country suffering from the recession and its neighbors, but the global impact of the coronavirus pandemic may buck that trend as everyone struggles to shore up their finances.

In a recent New York Times article, Angus Blair, chairman of business and economic forecasting think-tank Signet, said: “[a] loss of jobs tied to declining tourism will add to this. A drop in remittances means less purchasing power for many Egyptian households too.” This financial tightening of the belt may begin to be felt around the world, even in the US, where state after state is rushing to close bars, restaurants and other major industries to try and stop the spread of coronavirus.

Can't I Just Wait For Things To Return To Normal?

Unfortunately, “normal” may be a long way off, even if you live in a country that isn’t being directly impacted by the coronavirus pandemic. As we saw during the Great Recession, the downturn of one major economy will lead to others slowing in turn. These chain reactions sometimes affect countries seemingly unconnected to the original drop, like Argentina, Hungary and Jamaica during the Great Recession.

Given that there was more than $500 billion in remittances to developing countries in 2018, with the US, Saudi Arabia, Switzerland, Germany and Russia being the top 5 remitters, both Situation A and Situation B families should brace for financial impact. Situation A families will probably feel the brunt of the impact in the upcoming weeks while they struggle to support loved ones abroad, while Situation B families are likely to suffer a much more extended fallout.

About the Author

Zak Killerman is a writer for Finder specializing in money transfers and cryptocurrencies. He loves dogs as much as he loves helping people make better financial decisions.

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