| | A year ago, when we at Treasury spoke to many of our colleagues around the world about remittances, why remittances were an important public policy issue, and why remittances were a focal point for the US Treasury, our colleagues looked at us quizzically. You, the members of this audience, have a keen appreciation of the importance of remittances, and I'm pleased to say that now, so do most of our colleagues. But let me not get ahead of myself. On the international side of the Treasury, we have many objectives. A first objective is: - Promoting growth not just in the major economies, but globally -- drives much of our work with emerging market and developing countries, including through the IMF and the MDBs.
- Growth in our view is the most important contributor to poverty reduction, and growth should be led by the private sector.
- The Treasury is quite understandably interested in promoting more robust financial systems around the world.
- And, of course, we want the international financial system to be safe and sound, and one aspect of that is promoting compliance with anti-money laundering and counter terrorist financing standards.
Remittances are extremely relevant to all of these objectives. Remittances are a growing and key source of capital and income for developing countries. - Reported global remittance flows last year were almost $100 billion and some estimates put unrecorded remittance flows at that level.
- The recorded flows were nearly twice official development assistance and exceeded 10% of GDP for many countries.
- These flows are more stable than many other sources of capital flows.
- These are private sector flows. They reach isolated segments of society, and are used not just for basic subsistence, but also for such development purposes as financing education and housing.
- Remittances flow through many channels banking systems, money broker services, and cash couriers. Needless to say, personal transfers of cash are dangerous and unsound financial structures are vulnerable to abuse.
Remittances play a particularly important role in the Latin American, and especially Central American, economies. - Flows to Latin America last year were $38 billion.
- To Central America , flows were $6.1 billion, up 12% from '02.
- Remittances constitute a large part of the Central American economies in 2001, they were 24% of Nicaraguan GDP; and 14% of El Salvadorean GDP. 28% of the El Salvador 's population received remittances.
Remittances are different than the financial flows we in the United States are used to dealing with. We have huge computer systems for moving large and small amounts of money around domestically. I can send money anywhere in the US virtually cost free. But the cost of international transmission of money can be much higher often up to $30 on a transaction of $150 to $300. Why is it so costly? Simply put, the financial infrastructure for moving money efficiently across borders, especially small scale flows, is often weak. The high cost lessens the amounts remitted, reduces flows and their development impact and increases the vulnerability of the financial system to abuse. To address these problems, I think that technological innovation, clearing regulatory hurdles, and greater awareness among remitters and private institutions are essential elements. For example, if a payment system in the US can communicate seamlessly with a payment system abroad, this will lower transmission costs. But if a bank in the US and a bank in El Salvador can only interact through costly correspondent relations, the costs will be high. One need not be pessimistic on this front. The Federal Reserve and the Bank of Mexico have just developed a system to facilitate transmission of retail cross-border payments, including remittances. Existing proprietary cross-border payment system operators, such as VISA, have developed remittance specific products; new proprietary cross-border payment systems have been developed by organizations of financial service providers, such as the World Council of Credit Unions (WOCCU); and Citibank's purchase of Banamex now means remittances can be transmitted for $5 within the network. Already, in the US-Mexico remittance corridor, the cost of transmitting remittances has been cut 60%. To reap these benefits more fully, Treasury has launched a Global Remittance Strategy which brings together many different initiatives. Our overall objectives are simple: - To promote private sector outreach to stimulate competition in remittance services;
- To bring together statistical experts to improve remittance data;
- To gather standard setters to work on prudential standards for remittance service providers;
- To offer bilateral and multilateral assistance to strengthen financial systems;
- To provide technical assistance on anti-money laundering and counter terrorist financing; and
- To promote financial literacy as it called, or to bank the unbanked. People who don't understand basics about how to open an account and what services can be provided will not use banks. Addressing this challenge requires a significant educational effort. In the United States , for example, the FDIC offers its Money Smart Training program, a train-the-trainer tool available in four additional languages (Spanish, Chinese, Korean, Vietnamese) targeting key immigrant communities.
Let me touch on our initiatives. - Under the US/Mexico Partnership for Prosperity initiative, launched in fall 2001, Mexico and the US have worked together to promote competition among private providers, expand financial literacy, and improve the payment systems. This effort has galvanized significant attention: Last June, Treasury Deputy Secretary Bodman chaired the remittance roundtable discussion at the Second Annual Partnership for Prosperity conference which brought together over 600 people. The centerpiece of this effort has been the development of the Automated Clearing House (ACH) system by the Atlanta Fed and the Bank of Mexico, creating a connection between the retail inter-bank payment systems of the two countries.
- Under the APEC Remittance Initiative launched in fall 2002, the APEC economies have undertaken a regional effort to examine factors that contribute to the use of informal channels for remittances. By co-hosting with the World Bank and the Asian Development Bank a very successful Remittance Symposium this past June in Tokyo , APEC brought together the public and private sector to work toward creating a more competitive environment for remittances.
- Under Summit of the Americas Initiative, launched in January, our aim is to halve the cost of sending remittances by 2008 from 12% to 6% of a transaction. To this end, bilateral and multilateral efforts are being launched. On the bilateral front, Treasury and other US agencies will begin working intensively with pilot countries soon to be identified. A member of Treasury staff just returned from an assessment mission in Central America . These pilot projects will focus upon strengthening financial institutions, identifying and addressing impediments to remittance flows, working with the IFIs to target assistance to promote financial sector development and conducting civil society outreach. The Federal Reserve will host a conference next month on payment systems and the OAS is hosting outreach events.
- Under the 2004 Sea Island Remittance Initiative, each G-8 country studied the role remittances play in each of their economies, identified regulatory and other barriers to efficient delivery of remittances, selected a remittance partner country with which it would work, and approached the IFIs to explore what role each institution could play in furthering the goal of enhancing remittance services. Later this week, during the IMF/World Bank meetings, discussions will be held with the IFIs on remittance issues, including improving remittance data and developing prudential guidelines for remittance service providers.
I will turn the floor over to my fellow panelists now, but I hope in these brief moments, I have been able to share with you the importance that US public policy officials attach to facilitating the flow of remittances in an efficient and safe manner which enhances their development impact. | |
