Expatriates in the UAE now have the incentive to send money back home as the currencies of Pakistan, Philippines, and India have hit an all-time low.
Recent reports say that exchange houses in the UAE have seen a significant increase in remittances to these countries. Thanks to the dollar’s strength, expats are able to send more money back home. Similarly, the Euro has depreciated against the dollar and as such, expats from European countries are also taking advantage of the opportunity. The devaluation of these currencies can be attributed to a variety of factors such as political uncertainty, trade deficits, and inflation. A report released by the world bank in May 2022 showed that the inflow of remittances to Europe and Asia increased by 7.8 percent in 2021, reaching historically high levels.
Why did exchange rates drop to historic lows?
There are 3 main reasons for the sudden devaluation of these currencies.
1 Interest Rates
The first is interest rates. As countries like Pakistan and India raise their interest rates to combat inflation, it decreases foreign investment in those countries, causing their currencies to weaken. In May 2022, inflation in India hit an eight-year high, leading to the Reserve Bank of India raising interest rates, further decreasing foreign investment in the country, and causing the rupee to hit a record low against the dollar.
2 Trade Deficits
Another factor is trade deficits, or when a country imports more goods than it exports. This leads to an outflow of currency and puts downward pressure on exchange rates. Pakistan had a trade deficit of 55% in the last fiscal year, leading to a weakening of its currency.
3 Political Uncertainty
Finally, political uncertainty can also lead to weak currencies as investors become wary of investing in unstable environments. The instability of the European markets, erratic policies of the Uk, and unstable EU laws have caused the euro to depreciate. There have also been political tensions in India and Pakistan leading to uncertainty in the markets.
What does this mean for expats?
For expats sending money back home, it is a great opportunity to send more money as their earnings go further in their home countries. For example, those who send money from the USA to the Philippines, can now send a higher amount as the Philippine peso has hit a 12-year low against the dollar.
However, for those living in their home countries and relying on remittances from abroad, it can be concerning as the devaluation of their currency makes it harder to purchase imported goods and may lead to inflation. It can also lead to slower economic growth and potential job losses. Despite these challenges, expats are still taking advantage of the opportunity to provide financial support for their loved ones back home. As exchange rates continue to fluctuate, it remains to be seen how these economies will fare in the long run.
Is it better to wait or send money now?
The reality of the world economy is that exchange rates are constantly fluctuating and it can be difficult to predict what will happen in the future. From interest rate announcement to elections, a myriad of factors can affect exchange rates. Ultimately, it will depend on the individual’s personal and financial situation as well as their risk tolerance. For those who need to send money for urgent matters, it may be better to send it now while the rates are favorable. However, for those who have the flexibility to wait, they may want to monitor exchange rates and send money at a time when it will have the greatest impact for their loved ones.
Exchange rates are always changing
The dollar may be strong right now, but it is important to remember that exchange rates are always changing. As expats send money to support their loved ones back home, they must also consider the potential challenges and impacts of a weakened currency on the local economy. Despite these challenges, the current exchange rates provide a great opportunity for expats to support their families financially.