Wednesday, October 25, 2006


According to the Associated Press, through this post at Chao Vietnam, Wells Fargo recently became the first U.S. bank to provide direct remittances to Vietnam, via their association with Incombank.

The issue of remittances (i.e. folks in America sending money back to relatives in a foreign country) is an oft discussed matter, mainly in the context of America's illegal immigration debate with respect to Mexico. See this cached posting at Free Republic, to get a sense of the U.S. debate. The some in political right in the U.S. advocate, among other things, a penalty tax or even an outright ban on remittances.

Remittances to Vietnam likely will not enter the debate, mainly because (1) of its comparatively limited size and (2) there isn't the spectre of illegal immigration, after all, American VKs came here mostly as in-status refugees. Still, I wonder what the fuss about remittances is all about.

As an American, I endorse remittances, for it helps the U.S. government in minimizing its debts. U.S. greenbacks are essentially an IOU from the government to you - on some level, I value a U.S. dollar because I can use it to pay the government my debts, taxes, fines, etc. Obviously, I also use it to trade for goods with other producers and consumers.

The government prints these IOUs and in turn uses it to buy goods and services. It would be a wonderful, beneficial thing if one can hand out IOUs, in exchange for something of value, with the certain knowledge that the IOU holder will never come back and demand recoupment.

Remittances (nearly) do exactly this. While undoubtedly a portion of remittances are sent back to the U.S. via purchasing power to buy U.S. goods and services, a portion is also kept in-country and used as an alternative monetary system or held by a foreign government as a source of "hard" currency to prop up it's domestic money.

Money that leaves the U.S. and never comes back is great for the U.S. government. Essentially it bought goods and services without ever having to pay up on it's end of the IOU. Therefore, shouldn't Americans support remittances? America doesn't run out of money - we'll just print more. Only when the IOUs start to become due should we worry. So buy American dollars, just don't come back here and redeem them, ok?

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