Viewpoint: Costly Cash

Friday, September 4, 2015

Suppose there were a way of getting money to some of the world’s poorest people precisely when they need it. Suppose, too, that the flow hardly ever diminished, even during a global financial crisis. Finally, suppose the cash could not be creamed off by corrupt local officials. Surely every right-minded government in the world would want to encourage this and make it as cheap and easy as possible?

Alas, no. Remittances, the packets of money sent home by migrant workers from India, the Philippines and elsewhere, are individually tiny but collectively enormous. The World Bank estimates that flows to developing countries will be worth $440 billion this year—more than twice as much as foreign aid. And that is just the payments the bank can track.

Yet remitting money is expensive. In 2009 the G8, a club of rich-country governments, said it would try to cut the global average cost of sending funds from 10% (as it was then) to 5% over five years. The world is not even halfway there: the average stands at 7.7%, if wide exchange-rate spreads are counted as well as transaction fees. That is despite the emergence of rivals to giant money-transfer outfits such as MoneyGram and Western Union, which use networks of agents to collect and pay out cash. Peer-to-peer transfer services have popped up, slashing the cost of shunting money around the rich world. In poor countries, especially in Africa, “mobile money”, which can be transferred from one person to another by mobile phone, has made domestic transactions virtually free.


Source: The Economist (link opens in a new window)

poverty alleviation, remittances