Charts of the Month - September '21

Remittances

It’s been well documented, by us and by mainstream media outlets, that a couple of weeks ago El Salvador become the first country to begin accepting Bitcoin as legal tender, alongside the US Dollar. Additionally, Diego noted that Ukraine, Cuba, and Panama are all discussing similar implementations of the cryptocurrency into their legal framework.

Many practitioners and observers in the traditional finance world are criticizing the move, noting the many obstacles and potential pitfalls of doing something as ‘drastic’ as this. And we understand why. Markets tend to reward consistency, normalcy, calm, and broadly, things they understand and are used to.

So why are El Salvador and other disenfranchised countries moving in this direction?

The answer may be glaringly simple: the cost of remittances flowing in from overseas.

According to the World Bank: “Remittances, usually understood as the money or goods that migrants send back to families and friends in origin countries, are often the most direct and well-known link between migration and development.”

So just how big is the remittances market? The 2020 estimate per the World Bank is ~$700 billion, of which, $500 billion come from low- and middle-income countries.

Who profits from the remittances market? The major players are Bank of America, Citi, JP Morgan, Money Gram, Transfer Wise, Wells Fargo, Western Union, and a few others.

The average global remittance fee, per the World Bank, is 6.38%, but fees can go significantly higher, well into double digits, depending on geography. That’s money that goes to the banks and wire transfer agents above, not the recipients of the remittances or the country via taxes.

The average time it takes to transfer the money is 4 business days.

How big is the remittance market in El Salvador? Of all the countries the World Bank has data on, it ranks #7 in terms of GDP… 24%, or about $6 billion!

The average cost to transfer Bitcoin between the state-sponsored Chivo wallets? 0%.

The average time to transfer? A few minutes.

Here’s a selection of countries by remittances per GDP. You can find the full source data and additional information here.

Note: on the heels of this publication, Twitter just announced that they’re launching a ‘tips’ system with the Lightning Network where you can transfer Bitcoin instantly via Twitter, for free. Read the story here.

The Toolbox: Central Banks vs. The Market

Less of a chart and more of a list, the below is from the Maroon Macro newsletter. A succinct way to visualize the toolbox of the Fed (Exogenous) and Banks / Markets (Endogenous), with some great commentary to follow.

“Generally, when one talks about monetary conditions in the real and financial economy, one is referring to the Federal Reserve’s intended monetary policy stance with the implicit assumption that it is automatically and perfectly transmitted through the real and financial economy, so that actual monetary conditions (i.e. the quantity, price, and availability/accessibility of credit) are never that far off of the central bank’s design. While officials, commentators, investors, and other financial market participants may disagree and argue over whether they believe the Federal Reserve is being “too dovish” or “too hawkish” for their liking, the fundamental ability of the central bank to properly control monetary conditions is usually never questioned. But, as mentioned in previous issues of Monetary Mechanics, as well as by former central bankers themselves, what if central bankers do not have a large degree of control?”

Revenue per FTE

While far from the most important metric used to gauge a company’s operational efficiency, Revenue per Full-Time Employee (FTE) at least puts into perspective, within an industry, which companies achieve their financial success in the most streamlined fashion.

Comparisons across industries are not as useful. Oil & Gas is significantly more capital intensive (highly reliant on tangible assets like drilling equipment) than Tech (highly reliant on human capital to design and sell hardware/software), therefore a comparison of FTEs is not as relevant. Conversely, if we ran this comparison as Revenue to CAPEX, no doubt Tech would blow O&G out of the water.