What Is a Remittance and How Does It Affect Exchange Rates?
Remittances are money transfers sent home by migrant workers. They are a major capital flow that influences currencies in many countries.
Key Takeaways
- Remittances are transfers from migrants to family in their home country
- Global remittances exceed $800 billion per year — larger than FDI flows to many countries
- They provide a relatively stable source of foreign exchange for receiving countries
- Businesses transferring money internationally should use specialist FX providers, not banks
What remittances are
A remittance is a transfer of money by a foreign worker to an individual in their home country. Aggregated across millions of migrants globally, remittances represent one of the largest financial flows between countries — the World Bank estimates global remittances at over $800 billion annually.
Remittances and exchange rate stability
For many developing economies, remittance inflows are a significant and relatively stable source of foreign exchange. Unlike foreign direct investment (which can exit quickly) or portfolio flows (which are volatile), remittances tend to be countercyclical — migrants often send more home during economic stress. This stability makes remittances a genuine stabiliser for currencies of major receiving countries.
The cost of sending
Traditionally, sending remittances through banks or agents like Western Union cost 5-10% of the amount sent. Fintech disruption has driven these costs down dramatically. Wise, Remitly, WorldRemit, and others now offer transfers at costs of 0.5-2% with fast settlement.
Business-to-business parallels
When a UK company pays an overseas supplier or sends money to a subsidiary abroad, they face the same cost structure: exchange rate spread plus transfer fee. The same fintech providers that disrupted consumer remittances offer business FX accounts. A business sending £100,000 to a supplier abroad saves thousands by using a specialist FX provider rather than a high-street bank.
Regulatory considerations
International money transfers are heavily regulated to combat money laundering. Providers must comply with anti-money laundering (AML) requirements, including Know Your Customer (KYC) checks and reporting of suspicious transactions. For businesses, this means providing documentation when onboarding with a new FX provider and potentially explaining the purpose of large transfers. Maintain clear records of all international payments.