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Expats nervous about remittances as dollar dips

Wednesday, 17 August 2011 12:11

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Source: Khaleej Times
By: Deepa Narwani

The fall in the US dollar in the past few weeks has left in its wake a feeling of confusion about investments and remittances.

Due to the ongoing uncertainty, the US dollar has been losing ground against major world 
currencies.

Lalit Kumar, an expat said: “The last time I sent back money was in March and in this climate there is no point in sending money back home. It is better for the tides to change and hold onto remittances for now. Making an investment now would be a big risk.”

David Greene, corporate foreign exchange dealer, Western Union Business Solutions, Australia, said: “We often see that consumers will increase the principal amount sent when the currency is strong, in order to benefit from the more favourable exchange rates.

With the dollar rate falling, a number of currencies such as the Indian, Pakistani and Sri Lanka rupees, Bangladeshi Taka and the Philippines Peso have appreciated, and consumers may want to hold on to their remittances or send smaller sums.”

With the weakening of the US Dollar, other currencies have strengthened and since the UAE dirham is pegged to the US Dollar, expatriates are getting lesser amounts in their home currencies. This is prompting them to hold back their remittances.

Mohammed Ali Al Ansari, managing director, Al Ansari Exchange said: “The exchange rate has little bearing on essential remittances such as for family maintenance and loan repayments, which will continue to flow. Overall, the weak dollar/dirham has affected the flow of remittances to the major remittance corridors like India, Philippines and Pakistan.”

Even though the possibility of a default of the US debt seems to have been averted, there are still fears about the performance of the US economy.

“At the moment, there is too much volatility in the market hence, any long term investment decision at this juncture may be risky,” added Ansari.

“The UAE dirham is pegged to the dollar and thus susceptible to its movements. The UAE economy has started to show positive growth buoyed by higher oil prices, tourism and overall recovery in other sectors. But definitely, the risk of a long phase of weak dollar will have a bearing on UAE’s economy, which could impact the positive 
growth trend.”

Due to the unstable financial market, the UAE may also face the ripple effect.

“The UAE is still recovering from a significant shock of property values, however a weaker currency should assist with export led growth as tourism becomes relatively cheaper from a global perspective,” added Greene.

Deepak Patel, another expat echoed the same concerns. He said: “While the UAE financial markets have partially rebounded from earlier lows seen after the financial crisis, no markets today are insulated from the global events. Sending money home is not ideal now and I am going to wait a couple of months more for everything to get sorted out before transferring money.”

Y Sudhir Kumar Shetty, COO – Global Operations, UAE Exchange said: “Remittances to India may get affected only if INR appreciates beyond 44, that too for big tickets transfers towards investment/savings. Even though the scenario is not still clear, for the time being USD investments are on the bearish side. The USD peg may cause a long-term negative effect on UAE if the USD falls drastically.”

The climb of the rupee is not due to domestic factors, but a global trend where the dollar is sliding against multiple currencies due to a potential downgrade of US debt.

Ansari said: “The Indian Rupee has appreciated by more than 16 per cent against the UAE dirham in the last few months. This is mainly because of a steady decline of the US Dollar against major currencies. The UAE Dirham is pegged to the dollar; hence the Rupee has strengthened vis-à-vis the 
Dirham.”

The situation in the US together with the insolvency of Greece and some other smaller economies in Europe are sending negative signals in the financial markets. Similarly, the emerging markets in Asia are fighting high inflation. These currency markets are expected to stay fickle in the short term due to these changing financial conditions.