Remittances and global development

• Author: Seamus A. Howard
• Position: Georgetown University Law Center, J.D. expected 2023; University of California, Berkeley, B.A. high honors, 2018
• Pages: 321-343

REMITTANCES AND GLOBAL DEVELOPMENT

SEAMUS A. HOWARD*

ABSTRACT

High transmission fees for remittances sent through traditional channels

sap a large portion of potential development impact from what is one of the

largest sources of development capital in the Global South. Such fees deprive

developing economies and families from millions, if not billions, of develop-

ment dollars. This Note will consider whether cryptocurrencies can be part

of the solution to this problem. Cryptocurrencies are unlikely to provide a

comprehensive solution to the high cost of remittances, mainly due to cryp-

to’s high financial and knowledge-based barriers to entry for both senders

and recipients, as well as its general price instability. Governments of remit-

tance-dependent countries should instead focus on facilitating the inflow of

remittances by reducing transmission costs and by promoting their citizens’

access to banks and credit.

TABLE OF CONTENTS

I. INTRODUCTION ..................................... 322

II. MORE MONEY, MORE PROBLEMS: THE ISSUE WITH REMITTANCES . . . 323

A. How Are Remittances Used and How Do They Impact

Development? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323

B. The Problem with Remittances .................... 326

III. SOMETHING THAT (ISN’T) GREEN: CAN CRYPTOCURRENCIES

TRANSFORM REMITTANCES?............................ 329

A. Digital Remittances, Mobile Money, and Crypto: What’s

the Difference? ............................... 329

B. Crypto: How would it work? . . . . . . . . . . . . . . . . . . . . . . 330

* Georgetown University Law Center, J.D. expected 2023; University of California, Berkeley, B.A.

high honors, 2018. I would like to thank Professor Robert B. Thompson for his guidance and feedback on

this Note, as well as my family and husband for their constant support. © 2023, Seamus Andrew Howard.

321

1. Non-Governmental Distributed-Ledger

Cryptocurrencies ........................... 331

2. Central Bank Digital Currency ................. 332

3. Why Crypto Fails.......................... 333

C. Case Study: El Salvador . . . . . . . . . . . . . . . . . . . . . . . . . 337

IV. HOW DO YOU SOLVE THE PROBLEM WITH REMITTANCES?. . . . . . . . 340

V. CONCLUSION ...................................... 342

I. INTRODUCTION

Remittances, most generally, are transfers of money by migrants to their

family still living in their country of origin.

1

They are an important byproduct

of globalization which are only made possible because of an interconnected

global economy and transfer of people across international borders.

Remittances have grown rapidly in recent years. Although they are difficult

to monetarily quantify because of their informal nature (e.g. transfer of

money between family members), the World Bank estimated that $630 bil-

lion in remittances would flow from developed economies to low and middle

income regions in 2022.

2

Remittances, thus, are economically vital for indi-

viduals in, and governments of, developing nations. By some estimates,

remittances are the second largest source of external finance for developing

countries, after inter-governmental assistance, representing around double

the amount of official aid received.

3

Remittances, however, are not without criticism. Some studies have

argued remittances are an example of the “Dutch disease”: while they tend to

boost economic growth, remittances also tend to increase the value of domes-

tic currency and, paradoxically, hurt national exports.

4

Furthermore, some

believe remittances may have adverse effects on domestic institutional qual-

ity and governance.

5

However, this Note focuses on the main problem that

impacts the usefulness of remittances as tools for development: though tech-

nology has greatly reduced the cost of sending remittances through tradi-

tional means, their cost remains so high that a large portion of remitted

monies never gets to migrants’ home countries, removing consequential

1. See Dilip Ratha, Remittances: Funds for the Folks Back Home, INT’L MONETARY FUND (Feb. 24,

2020).

2. KNOMAD, WORLD BANK, MIGRATION AND DEVELOPMENT BRIEF ix (2022).

3. Reena Aggarwal, Asli Demirgu¨c¸-Kunt & Maria Soledad Martı

´nez Perı

´a, Do remittances promote

financial development?, 96 J. ECON. DEV. 225, 225 (2011).

4. Burc¸ak Polat & Antonio Rodrı

´guez Andre

´s, Do emigrants’ remittances cause Dutch disease? A

developing countries case study, 30 ECON. & LAB. REL. REV. 59, 72 (2019).

5. Yasser Abdih, Ralph Chami & Jihad Dagher, Remittances and Institutions: Are Remittances a

Curse?, 40 WORLD DEV. 657, 663–664 (depicting that when households receive remittances, the govern-

ment “finds it less costly to free ride on households and their emigrant relatives and divert resources for

its own purposes”).

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