The effect of currency fluctuations around the world on Remittances and Family overseas
The effect of currency fluctuations around the world on Remittances and Family overseas.
Millions of families in Africa, Asia and Latin America daily get money sent by their relatives abroad. These remittances meet school fees, medical expenses, food and shelter. They are not simply transactions of money, but lifelines. But the lifelines are becoming more fragile than ever before due to forces much bigger than the control of the families which rely on them. Top of these forces is the unpredictable world of world currency fluctuations.
Both the receivers and senders should understand the impacts that currency movements have on remittances. Any fluctuation in the exchange rates may spell the difference between a family that can afford necessities and that which may not. This is what every family has to know.
The Remittances Scale in the Modern Economy.
Foreign exchange earned through remittances has silently become one of the biggest source of foreign exchange to most developing economies which in most cases outshines exports and foreign direct investment. By 2025, diaspora remittances in Nigeria had topped 23 billion US dollars with more than three-quarters of these funds coming out of only three Western economies; the United States, the United Kingdom, and Canada. By February of 2026, the external reserves of the country have risen to 49 billion and remittances are playing a significant role together with oil receipts.
Kenya tells a similar story. Kenyans in the diaspora remitted a record Sh650 billion (equivalent to 5 billion dollars) in November 2025 and remittances are the leading source of foreign exchange in the country, earning more dollars in 12 months than coffee, tea, horticulture and tourism-combined.
The remittances inflow to Ethiopia in the 2023/24 fiscal year amounted to more than $6 billion, which serves as a badly needed cushion to balance of payments and the import bill amidst incessant foreign exchange limitations.
These flows do not exist as abstract statistics. They are millions of separate transactions, each of which serves real families having real needs.
The impact of Currency Fluctuations on Remittances.
In cases of the Weakening of the Currency of the Sending Country.
Consider an example of a Nigerian nurse in the United Kingdom. She makes her earnings in sterling pounds and remits PS200 back home to her family every month. Should the pound fall against the naira, e.g. PS1 = N1,500 to PS1 = N1,200, her family gets a good deal more in local currency, although she sent the same value. This difference of N60,000 would imply either reduced food intake or an absence of medical service.
This is the situation that is happening day by day. The impact of the decrease of the US dollar in 2025 and the first half of 2026 has been immense. The dollar index that tracks the greenback against a basket of peers dropped 9.37 per cent in 2025 and further dropped in early 2026 reaching its lowest point in nearly four years. To families that are being given the dollars which are converted to domestic currencies, this weakness is translated to a direct impact of a decrease in purchasing power.
In the case where the Receiving Country Weakens.
Families can also be ruined by the reverse situation. Should the currency of the receiver nation plummet drastically, the equivalent quantity of foreign currency will be acquiring far less. This is especially hurting when there is high inflation when the local prices are increasing yet the currency is deteriorating.
Currency volatility can be devastating in Ethiopia where remittances is the main safety net of many households in the country. The transfer that is made by diasporas usually covers basic necessities like food, medical expenses, school fees, rent and emergency requirements especially in drought-stricken and war-torn regions. Weaker birr means that the said dollars will purchase less and families will have to compromise necessities.
The Double Squeeze
This is the most torturous scenario, as both sides are working against the family, the currency of the sending country becomes weak against the dollar (undervaluing the dollar value of remittance) and the currency of the receiving country also becomes weak (undervaluing what the said dollar will actually purchase in a given country). Such a combination of strains has the potential to drive desperate families into crisis.
New Taxes Add Currency Strains.
In addition to the market-based currency fluctuations, families are now confronting a new menace, and that is taxation on the remittances. The United States, which was the leading sender of remittances to Kenya, close to half of whom, has implemented a 1% excise tax on outbound money starting January 1, 2026. Analysts estimate this would cut remittances out of the US by at least 1.6 percent, and that these would have a knock-on effect on household incomes and foreign exchange pressures.
According to a study by the Centre for Global Development, the mechanism works as follows: the proposed tax would be likely to decrease the amount of remittances sent via formal channels in two directions: by subsisting the quantity sent, some of it would go to pay the tax instead, and by decreasing the quantity sent altogether, because it discourages remittances sent.
The Saudi Arabia, which is the major remittance provider of Kenya within the Middle East has enacted a value-added tax on services where money transfer service providers are obligated to charge and pay the transaction cost tax. Remittances of the Gulf country have already fallen, as they are now at Sh2.2 billion in September, down to Sh4.2 billion in January 2025.
There has also been a shift in taxation of foreign income among the non-citizens of the United Kingdom where mandatory tax on income on residents is imposed whether they remit the income to the UK or not. This implies Kenyans in the UK who have other countries as their source of income might have less disposable income to remit back home.
In the case of Ethiopia, a 1 percent U.S. remittance tax would represent a sizable external shock on its own but the levage would add to the friction at the edge and promote the replacement effect out of formal intermediaries. Informal channels such as hawala network may become the main source of large flows that cannot be maintained by a central bank in case a policy-induced increase in transaction costs transfers a larger portion of flows into informal channels.
The Oil-Remittance Replacement: A silent Change.
Nigeria provides a vivid case of the redefinance of economies by remittances. According to experts, diaspora remittances are silently taking over the title of a more predictable foreign exchange earner than crude oil earnings. According to the former Chief Economist of Zenith Bank Group, Marcel Okeke, this is due to the tension in the world as the price of oil continues to rise and fall. You do not know what will happen between Russia and Ukraine, you do not know what will happen between the US and so many other nations. Nevertheless, up to the present moment, it will continue increasing with remittances, I believe.
In what way has the issue of currency change impacted on the remittances in your family? Discuss your experience below. To get some more feasible information on economics and personal finance, continue reading WAPDAY25.
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