Impacts of Remittances on Inflation – A Brief Guide

Do you know that the global inflation rate which was 3.18% in 2020 has crossed an alarming rate of 4.35% in 2021? Several reasons must have contributed to the rise in inflation, affecting the lives of billions of people. However, there must be countries striving their best to control and minimise it through different strategies. International remittance transfers can be one of the most effective tools to reduce inflation and increase economic strength. For instance, India is a country that has achieved steady economic growth with soaring GDP since there are countless Indian expatriates in other countries who send money to India frequently. Likewise, more countries can accomplish similar goals through cross-border money transfers helping to reduce inflation.

Let’s understand inflation and how remittances can help control inflation, especially for developing countries.

Understanding Inflation 

Inflation refers to a general increase in the prices of goods and services in an economy. When the prices of goods increase, people cannot buy the same goods previously purchased. It also refers to the drop in purchasing power of the people.

 

The history of Inflation is essential for better Insight.

The history of inflation dates back to when silver and gold were used as currencies in the ancient world economies. The governments would collect silver and gold and melt them down. Then cheaper metals such as copper and lead would be mixed to enable people to purchase those. Therefore, the phenomenon of inflation is quite old, with the coinage of the term ‘inflation’ relatively new, developed in recent history.

Now, you study the possible measures to control inflation.

What are the measures to control inflation?

Measures to control inflation in an economy are many. But, you will learn a few important ones here.

Monetary measures are necessary to take. 

It is an essential measure a central bank can take to control inflation. It can include bank rate policy, cash reserve ratio, and open market operations.

Fiscal Policy is of Utmost Importance

Central banks have to devise fiscal policies to keep inflation under check. The procedure can include increased savings, an increase in taxes, and surplus budgets.

Controlling Prices and Wages

Lastly, the governments in a country have to ensure that the prices and wages are kept under check and control. It must be assured that the wages and prices are strictly aligned with the fiscal policies devised by the central banks that are the monetary regulators.

Let’s see how the impact of remittances on inflation.

How does remittance inflow impact inflation?

Here is a quick overview of how remittances keep inflation in control.

Remittances set the economic wheel in motion.

With the flow of remittances, the recipient country’s economy boosts. With the help of remittances, the recipients make investments; this practice generates employment opportunities for others. India has set a great example since their expatriates send money to India online from different developed countries. These international remittances have resolved numerous financial and economic issues of the country by controlling inflation and stimulating its GDP.

Remittances expand industries.

Remittances play a vital role in expanding various industries in a country. For instance, when individuals and families in a country like India start receiving money from a foreign country, it most likely improves their quality of life at first. Having sufficient funds in hand every month, people make savings, which later help them invest in the rising industries that can probably win a considerable return on investment. In this way, international remittances such as money transfers to India or other developing countries positively impact industrial expansion.

Remittances strengthen purchasing power.

Inflation leads to a drop in your purchasing power, as explained at length above. With the help of remittances only, your purchasing power goes up. Since remittances come directly to the recipient’s account, with little to almost no government intervention, it helps you gain control financially. When expatriates earn in a foreign land and send money to their family back home, it improves their living standards, given the exchange rates can help the remitters send maximum funds to their families. For example, ACE Money Transfer is one of the leading remittance companies that offer the best exchange rates with the lowest transfer fees helping the beneficiaries to receive more money from abroad. When an Indian expatriate makes an online money transfer to India using ACE’s services, it adds to the country’s economic value and expresses the customer’s trust in the company’s services.

Remittances increase individual incomes.

Remittances are the money transferred internationally using the services of some credible companies, including ACE Money Transfer. The money reaches the recipient directly and increases their buying power. Usually, in developing countries, people have little to no chances to earn as much as to meet their buying needs sufficiently. Working and earning abroad allows them to start making as much as they can quickly improve their buying power in their home country through international money transfers.

Remittances are helpful for savings.

With the help of remittances that the expatriates send through the best international money transfer services, people can save money instead of circulating it in the market. They can make savings as the best exchange rates and low transfer fees enable the remitters to send more money home. More money directly means that the families can save enough every month to meet their fundamental needs. Thus, when expatriates send money to a home country online, their families can make huge savings quickly.

Remittances enable people to invest. 

The recipients of foreign remittances can make investments in businesses and property etc. The practice helps arrest the growth of inflation.

Remittances break the inflation cycle. 

Observe closely, and you will realise that inflation operates in cycles. It never goes away once it visits a country. It is only with the help of remittances that this cycle is broken. Remittances help the recipients break away from the inflation cycle by denting the process itself in the first place.

Remittances lead to your financial health.

It is only with the help of remittances that your financial health improves. Of course, most of the remitters hail from countries of low income. Only through the remittances can you fulfil your financial dreams, which remain as such otherwise – the unfulfilled dreams!

The best method for International Money Transfers 

The best way to send money to India is the one that corresponds to your exact needs. If, for example, you are not concerned about the time it takes, you are good to send money through banks via wire transfers. If you want to send money right from the middle of your comfort zones, you may end up choosing a credible company. But, if you want speed, security, low fee and the best currency exchange rates under one roof, then your best bet is to draw a thorough comparison between a few reputable companies, including ACE Money Transfer.