In brief, U.S. regulations on money transfer providers have made the old way of doing business nonviable because of increased compliance costs and risks associated with money laundering and terrorism funding.
The global issue hit home this summer when Fidelity Bank and Cayman National Bank stopped offering those services, leaving companies such as Western Union, MoneyGram and JN Money Services scrambling for alternatives.
The situation is this: How does someone get money from Point A (Cayman Islands) to Point C (Jamaica, Philippines, etc.) if Point B (the bank) can no longer act as an intermediary?
The market, as it tends to do, has discovered a solution, temporary though it may be. For the time being, the money transfer companies are accepting only U.S. dollars, which they then bundle up and put on airplanes to deposit directly in banks in the U.S.
At first, the problem was largely confined to the clientele of the money transfer companies — mainly expatriates on work permits who regularly send cash back home to their dependents, primarily in Jamaica and the Philippines.
It may sound callous — however, as callous as it is in utterance, it is far more so in practice — but it was easy, perhaps, to overlook the tribulations of this sector of society because of their relative lack of wealth and status. What does it matter, really, to the resident professional if his housekeeper or gardener is asking to be paid in U.S. dollars instead of Cayman dollars? If they are being charged higher fees for currency conversion? Or if their options for cash transfer services are being limited?
Just add cash transfers to the litany of obstacles facing Cayman’s “imported labor,” such as work permits, rollover periods, lack of access to public education, denial of other social services, etc.
What we have here is not an equitable system, but it is, nonetheless, a system.
The money transfer companies’ workaround has worked well in the sense that it has allowed people to continue to send money out of Cayman. It has worked maybe a little bit too well in the sense that it has resulted in a shortage of U.S. dollars in Cayman.
The immediate effects of this, noticeable to everyone, have been ATM machines empty of U.S. dollars and restrictions from local banks on who can obtain U.S. cash, and how much such services will cost them.
In the medium term, it is possible that a persistent shortage of U.S. dollars in Cayman could lead to a limited devaluation of Cayman’s currency on the street. We don’t know how likely that is, but if it does occur, we imagine our American tourists, patronizing local retailers and restaurants, would welcome such a development.
In the longer run, the money transfer companies will have to adapt, or they will go out of business. Perhaps newer alternatives will emerge that leverage the Internet and mobile phone networks, such as PayPal and M-Pesa (in Africa, Asia and Eastern Europe).
Either way, we doubt that the money transfer companies’ current ad hoc fix will be the permanent solution to the U.S. correspondent banking problem.
For the time being, however, we can note the following irony: Our modern economy was built (so the stories go) on suitcases stuffed with U.S. cash and flown on airplanes into Grand Cayman.
Today, the U.S. cash is still flowing — but in the opposite direction.
Call it a round-trip itinerary … or economic equilibrium.