Chart 5 above presents the average fee paid by senders in New York City to transfer $300 dollars to the 40 developing countries covered in this survey by using the services of Western Union, MoneyGram -- the two largest worldwide money transfer firms – and Citibank, in February 2005.

It is beyond the scope of this survey to describe the different fees existing in each of the countries covered in this study.<sup>9</sup> Fees vary not only from country to country, company to company, but also according to the instrument used to send the remittance (electronic wire, money order, etc), the amount sent, and the speed at which the funds become available to the beneficiary (15 minutes vs. several business days).<sup>10</sup> Although the fees presented in chart 5 come from three companies – including two of the leading companies in remittances worldwide — for the purpose of this survey they can be seen as a good indicator to illustrate the range of fees existing for transferring remittances to developing countries. As shown in the chart, the cost of transferring $300 dollars from New York City to most countries covered in the survey ranges between $25 and $30 dollars (or 8.3% and 10% of the sent amount, respectively). Remittances to Mexico and Philippines seem to be most competitive in this group of countries; a money transfer in the amount of $300 dollars to Mexico costs between $5 to $29 dollars, and between $10 to $27 dollars to Philippines.<sup>11</sup> On the other extreme, fees for remittances to Bangladesh, Pakistan and SriLanka range between $25 and $39 dollars (or 8.3% and 13% of the amount sent). These costs do not include the exchange rate spread that may be applicable for transferring money to some jurisdictions (second component). In this type of service, beneficiaries do not pay any fee for receiving their funds (third component).

Clearly, the fees for sending remittances to most developing countries remain high. Although the fees may decline when the remittance amount increases, international studies on remittances and migration indicate that the average amount sent by most migrants to developing countries is in the range of $300 dollars and that the money is sent on average every month.<sup>12</sup> How can central banks in developing countries encourage a reduction of fees paid by senders and recipients of remittances? In principle, as explained in Figure 2, the scope for central banks in developing countries to foster the reduction of remittances fees is actually limited, because the fee that senders pay (component 1) is always determined by the financial institution located in the country where the transaction originates. The second fee component (exchange rate spreads) may sometimes be determined in the country where the transaction originates, in particular when the sender wants to know the exact amount the beneficiary will

> 9 Manuel Orozco (2004b) provides the most comprehensive analysis of remittance fees charged by institutions based in the USA for money transfers to Latin American countries.

> 10 R. Hernandez-Coss (2004) has documented the different costs of sending remittances from the USA to Mexico. His research shows that fees vary according to the city in which the transaction is originated and the town or city where the beneficiary in Mexico receives his money.

> 11 On January 28, 2005, Bank of America announced the elimination of fees for money transfers between the USA and Mexico.

> 12 See R. Hernandez-Coss (2004) and Manuel Orozco (2004) for Latin America.

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