Blocking Remittances Would Be Costly to Poor People and the United States

In a letter to the Washington Post, Donald Trump makes the case for blocking remittances to force the Mexican government to pay for a wall between the two countries.  According to the Post, “the core of Trump’s approach is a focus on the remittances of illegal immigrants, which he argues are crucial to Mexican economic stability and are a way of pressuring the country to disburse billions of dollars to the United States to fund construction of his wall.”

None of that would be good for migrants, their families back home, or for the United States. Stopping remittance flows, if it were pulled off, would be very costly to Mexico. In 2015, Mexico’s remittances were $25 billion, slightly higher than its oil revenues. These funds are critical to migrant workers’ families and are often used to buy health services, education, food and clothing.  (Globally, remittances are worth more than three times total foreign aid flows.)

It could also have some unintended consequences. Banks — and the money transfer organizations (MTOs) that rely on them — are already under heavy pressure from regulations against money laundering and the financing of terrorism, to the point that many banks have withdrawn completely from the remittance sector.  American banks have been retreating from the remittance sector for years--major banks like JPMorgan Chase, Citigroup and Bank of America are very reluctant to offer or facilitate remittance services for Mexicans in the US. This is part of a global wave of ‘de-risking’ and has made remittances more expensive. Industry insiders report that many smaller MTOs have been forced to close, become agents of larger businesses, or even disguise the true nature of their operations in order to remain banked. A further move against remittances to Mexico, coupled with demands on money transmitters to verify the immigration status of senders, could lead to greater secrecy and a larger black market.

For recommendations that do increase security, transparency, and access to financial services, our recent report has five. Other good proposals, including those written by our colleague Michael Clemens, address the problem of undocumented workers. These ideas are far more likely to help Mexico, the United States, and other countries be safer and more prosperous.