What are Official and Unofficial Remittances?

A very simple question, what is the difference between and official remittance and an unofficial one? Watch this short video to find out. Also watch:

Transcription:

Hello. My name is Faisal Khan. I am a banking and a payment consultant. A question I got is what are official and unofficial remittances. Well, remittances occur when, you know, foreign exchange comes in through licensed money transfer operators or banks and is delivered to some beneficiary in the country. And it comes for using the official channels which basically, you know, lets the central banks and the commercial banks are recording their transaction.

Typically when a remittance originates it’s a person that’s working abroad sending money back home. And they walk into a money transfer or a money exchange company and they say hey I want to send some money back home, and they’ll take the details, and you pay up, and that money is moved back home. If there are isn’t a money transfer operator, then there might be a bank that is involved or whether, in the originating country, and that money comes into the beneficiary countries. Because the money came in through a licensed operators banks or money transfer operators, it is recorded. When it is recorded that means the country’s overall financial reserves, foreign exchange reserves have improved. And because something has improved, the financial health improves, this is good for the economy especially for countries that have a current account deficit. Meaning they import more than they export. So, they need all the foreign exchange they can get.

So if that’s a $10,000 has to come in from let’s say the United States into the Philippines and if it comes in through the official channel, at the end of the day the Philippines is $10,000 more richer which is good, on a minute scale, but good nonetheless. And that would be an official transfer. If the very same person would be, you know, go to their friend and saying hey you’re flying back to Manila, why don’t you carry my $10,000 for me and please give it to my mom. And they do that. Now that would be an unofficial transfer. It would also be a Hawala or Hundi transaction. I’ve done two videos on it. I’ll put the link below so you can look at it.

So, when do you send money to a friend or family or netting it off, you know, someone needs money in the U.S. and so, you need to send money to Philippines so you’re taking money in the Philippines locally and say Hey pay to my mother and I’ll pay it in the U.S. on your behalf and so forth. These are unofficial remittances. They are not recorded by money transfer operators. They are not recorded by banks and they don’t basically improve the financial health of the country. The money may have physically come in or otherwise have been settled. Remittances may have come in, but they’re not recorded on the official ledger. And because they are not, the financial reserves or the foreign exchange reserves of the country do not improve. This would be an unofficial remittance. Think of it like a family. So, you have this family and you ask them what their wealth is. Well, they’re showing you their bank statement. And that would be a, you know, very healthy representation of who they are and if the bank statements says $10,000 that’s paid you know there was $10,000.

But, what about the piggy bank that they have that they’re very quietly keeping and has another $2,000 in it. That cannot be taken into account because it’s not in the bank until they don’t declare it, it is not included. Now technically speaking, or I don’t know how you want to put it. The families worth $12,000, because they have $10,000 in the bank and $2,000 in the piggy bank. But officially they’re only worth $10,000. So it’s the unofficial remittances plus the official remittances that really are the bulk of what the money comes into any country and countries are trying to incentivize so that the unofficial remittances come through official channels.

I hope I was able to explain the concept between what is unofficial and an official remittance. If you have any questions or comments, there is a contact form in the link below. Sign up, fill it up and it comes to me personally and I’ll look at it and I will be happy to reply. Till next time, have a good one.