Introduction to the IMF’s Findings on Remittances and Exchange Rates
According to a study by the International Monetary Fund (IMF), an influx of remittances into a country can exert short-term pressure on the exchange rate and potentially weaken its competitiveness in tradable goods. This effect is more pronounced and rapid in countries with flexible exchange rate regimes.
IMF’s Perspective on Remittances and Exchange Rates
The IMF experts admitted that remittances have a more significant impact on the exchange rate than liquidity premiums on government bonds, global risk measurement, and demand for liquid assets. However, they highlighted that countries with flexible exchange rates may experience an overvaluation of their currency if they receive relatively high remittances.
Focus on Mexico
The IMF study, led by Alina Carare, Juan Pablo Celis, Metodij Hadzi-Vaskov, and Yasumasa Morito, did not analyze any specific country’s experience but categorized nations based on their exchange rate systems. Among the 80 countries with flexible exchange rates, including Mexico, they examined the impact of remittances.
This is not the first time the IMF has focused on remittances’ impact on the foreign exchange market. In September of the previous year, they released a study titled “Managing remittances inflows with foreign exchange intervention,” proposing the development of risk management tools to enhance the capacity to absorb additional foreign currency inflows via remittances.
Mexico’s Remittance Scenario
Analysts like Raymundo Tenorio, an emeritus professor at the Instituto Tecnológico de Estudios Superiores de Monterrey (ITESM), had previously warned about the historical influx of remittances evident in Mexico’s money supply since 2020.
“Remittances come in as dollars but are exchanged for pesos to be spent within Mexico,” Tenorio explained.
Gabriela Siller, the director of economic and financial analysis at Banco Base, further elaborated that the total volume of Mexican peso operations against other currencies in the previous year amounted to 6.53 trillion dollars.
- 20.1% of this total volume was driven by Mexican peso operations with at least one local counterparty as backing for the real economy.
- 19% was explained by trade flows.
- 79.9% were speculative operations.
- Only 1% of the total dollar volume corresponded to remittances.
The research center “Mexico: How are we doing?” had previously approached the impact of remittances on the exchange rate in January of the previous year.
“More dollars in the Mexican economy, given the flexible exchange rate regime, imply a stronger peso,” they stated.
The accumulated remittance inflow into Mexico from January to April of the current year stood at 19,015 million dollars, which was 2.5% lower than the accumulated flow during the same period of the previous year.
Over the past 12 months, from April 2024 to April 2025, remittances sent from abroad to the 4.9 million households in Mexico amounted to 64,260 billion dollars.
Key Questions and Answers
- Q: How do remittances affect the Mexican peso’s exchange rate? A: More dollars in the Mexican economy, given the flexible exchange rate regime, imply a stronger peso.
- Q: What is the current state of remittances in Mexico? A: The accumulated remittance inflow into Mexico from January to April of the current year was 19,015 million dollars, which is 2.5% lower than the same period in the previous year.
- Q: How much have remittances increased over the past 12 months? A: Over the past 12 months, from April 2024 to April 2025, remittances sent from abroad to Mexican households amounted to 64,260 billion dollars.
