Transferring remittances through central banks: A tool applied to the Guatemalan exchange rate

Abstract

AbstractCountries where the volume of remittances received represents a significant proportion of their gross domestic product usually face short‐term pressures on their exchange rates that are unrelated to their economic fundamentals. In this article, we analyze how a remittance payment system involving the central banks of the source and destination countries of such remittances could mitigate the pressures on the exchange rate in the receiving country. To quantify the possible effect of such a system, we make an estimate for the case of Guatemala. We also consider the other benefits this system might provide for recipient economies.