Why remittance is important to the economy?
What exactly is remittance?
It refers to money transfer that is sent or transferred to another party. Derived from the word remit, they can be sent via various methods: 1) Wire Transfer 2) Electronic Payment System 3) Mail 4) Draft 5) Cheque
More often than not, workers use remittance services to send money online to their families back home.
What’s the situation like in Singapore?
In Singapore, there are close to 550,000 foreign workers who use such money transfer services. Every year, millions of dollars are sent by migrant workers to their home countries. Singapore& economy benefited US$8.2 billion in 2018 from money transfers made by the 250,000 migrant workers who call it home. These funds benefit not just the recipients themselves but also their local and national economies.
How does this affect the economy?
Provide stable inflow of fund into home countries
As workers need to send a constant income back home to support their families, remittance transfers are usually consistent and regular. This form of foreign earnings is often seen as funds that are more stable and reliable as compared to Foreign Direct Investments (FDIs) or foreign aid. Remittances as such are powerful driving forces for creating and maintaining the much-needed foreign exchange in the receiving country. In addition, when these funds are spent, it creates an income for others and will in turn also stimulate economic activities.
2. Works in reverse of economic downturns
Another important point to note is that remittance itself works counter cyclical to economic distress at their local economies. Unlike the workings of FDIs, economic distress in the home country inspires migrant workers to increase the volume of funds they remit back home. This is simply because of altruistic reasons or to protect their own economic interests at home. Thus, just as remittances can be seen as an ‘invisible helping hand’ for national economies, providing them with a potentially stabilising stream of earnings.
The methods of which workers transfer money internationally?