This year marks a major milestone in terms of the cash flowing to low- and middle-income countries: Remittances are now significantly larger than any other source of funds.
The big picture: Remittances generally arrive in small chunks, maybe a couple of hundred dollars at a time, but there are a lot of them, and they add up. Today, they're bigger than foreign direct investment, they're much bigger than flows from bond and stock markets, and they're about three times bigger than flows from official sources like the World Bank.
- The development impact of remittances is enormous, for two main reasons. First, remittances disintermediate most government bureaucracy and go straight to poor individuals. Second, and more importantly, they are the only major foreign-currency flows that do not need to be repaid.
- In Venezuela, remittances are a literal lifeline — many Venezuelans would die without them, according to World Bank remittances expert Dilip Ratha. And those flows aren't even measured in the chart above, since they take place in the grey market, out of sight of the authorities.
Why it matters: Remittances are a form of decentralized, distributed power — and they amount to more than $700 billion per year, most of which goes to poor people in poor countries. By comparison, total World Bank disbursements in 2018 were $46 billion.