Recent Changes In RMB Interest Rates And Their Impact On Remittances
The Chinese government has announced a series of changes to interest rates on the Chinese Yuan (RMB) in recent months, and these changes are having an impact on the amount of money being sent abroad in remittances.
Remittances are money transfers made by migrant workers to their home countries. These workers send a portion of their earnings back to their families to help with living expenses, and the total amount of money remitted each year is significant. In 2018, the World Bank estimated that $689 billion was sent in remittances, with $528 billion going to developing countries.
The rmb interest rate changes in China are part of a larger effort by the government to liberalize the financial system and make the RMB more attractive to global investors. However, these changes are also having an unintended consequence of making it more expensive for Chinese citizens to send money abroad.
Before the interest rate changes, Chinese banks offered higher interest rates on deposits in RMB than in other currencies. This made RMB deposits a popular choice for Chinese citizens looking to send money abroad, as they could earn a higher return on their investment. However, the interest rate changes have reversed this dynamic, and now Chinese banks are offering lower interest rates on RMB deposits than on deposits in other currencies.
As a result of these changes, Chinese citizens are increasingly choosing to send their money abroad in other currencies, such as the US dollar. This has led to a decrease in the amount of money being sent in remittances from China. In the first quarter of 2019, remittances from China totaled $5.6 billion, down from $6.4 billion in the same period last year.
The decrease in remittances from China is having a negative impact on developing countries that rely heavily on this source of income. For example, in the Philippines, remittances account for around 10% of GDP. The decline in remittances from China is putting additional pressure on the Philippine economy, which is already facing challenges from slower economic growth.
While the Chinese government’s intentions with the interest rate changes were to liberalize the financial system and make the RMB more attractive to global investors, the unintended consequence has been to make it more difficult for Chinese citizens to send money abroad in rmb remittance. This is having a negative impact on developing countries that rely on remittances from China, and it is something that the Chinese government will need to address in the future.