Unstable patterns in cross-border money transfers

The United States continues to be the largest sender of remittances to Mexico, a critical lifeline for many families in the Latin American country. However, the final outcome of this year's remittance figures remains uncertain due to the ongoing Covid-19 pandemic and its structural effects on global economies.

The World Bank had initially forecasted a 20% decline in remittances worldwide for 2020. This prediction was based on the assumption that the pandemic would cause economic downturns in many countries, leading to reduced employment and income levels among migrant workers.

Remittances to Mexico experienced a 35% spike in March, a surprising development given the global economic turmoil. This spike was largely due to the strong depreciation of the Mexican peso against the US dollar, making remittances more valuable in pesos. However, April saw a reversal of this trend, with remittances to Mexico experiencing negative growth.

The negative market conditions affecting the US economy are likely to continue to exert downward pressure on remittance flows to Mexico. The impact of the pandemic on global economies could potentially cause further volatility in currency markets, adding to the uncertainty surrounding remittance trends.

Some example countries, like Paraguay, have shown more modest declines in remittance flows compared to the World Bank's April prediction. Paraguay's strong economic growth prospects, with an expected GDP growth of nearly 4% in 2025, and its digital payment infrastructure serving as a benchmark, may have contributed to these more moderate declines.

The extent to which the Covid-19 pandemic will change the economies around the world is still not certain. The amount of currency volatility that will enter the market is also not known. The stabilization of trends in remittances depends on how currency volatility affects the market.

As more people return to work in their host countries, trends in remittances are expected to stabilize. However, the uncertainty surrounding the year's development in remittances is due to the uncertainty surrounding the Covid-19 pandemic's structural impact on economies and currency markets. The stabilization of remittance trends is contingent upon the stability of currency markets.

In conclusion, while the spike in remittances to Mexico in March provided a glimmer of hope, the overall picture for remittances remains uncertain due to the ongoing Covid-19 pandemic. The World Bank and the International Monetary Fund will continue to monitor the situation closely and update their forecasts as more data becomes available.