Remittance fact of the day: Mexico edition

This page in:

Mexican remittances have reached their lowest level since February 2005, according to the Central Bank of Mexico.

The FT's Money Supply blog reports the news, in a post entitled "As the dollar slides":

The (remittance) payments were 14.4 per cent below their year ago levels, and more than 43 per cent below the high hit in October 2008. But the speed of the annual decline slowed to its lowest level since March as the US economy sheds fewer jobs.

Judging by their choice of title and subsequent content, the Money Supply authors think this fall has something to do with a combination of a weaker dollar and higher unemployment.

Alas, the former assertion makes no sense. Between January 2005 and September 2008, the dollar-peso exchange rate was relatively flat. Following the collapse of Lehman Brothers in September 2008, the peso weakened significantly. A weaker peso should mean higher peso-denominated remittances. Instead, remittances have fallen.

Looking over the past two years, the peso has gained against the dollar since March 2009. Yet it remians weaker today than in October 2008, when remittance flows were 42 percent higher.

Take a look at the 5-year and 2-year dollar-peso exchange rates:

Dollar-Peso2005-2010 Dollar-Peso2year

Something else must be at play.

The predominant cause of falling remittances is rising unemployment in the United States, which has had a disproportionate impact on migrants. As a sign of just how bad their situation has become, some unemployed Mexicans in the US are now dependent on receiving remittances from their families in Mexico.

Ironically, a weaker dollar may be exacly what migrants need, as it would stimulate American export growth, boost overall employment and, in all likelihood, result in increased remittance flows.

A weak dollar isn't the cause of declining remittances to Mexico, but it may be part of the solution.

Join the Conversation

The content of this field is kept private and will not be shown publicly
Remaining characters: 1000