How do governments reconcile money that flows out of their country?

Australia has a lot of foreign businesses and it has a lot of immigrants. Both earn Australian dollars and huge amounts would be sent back their country of origin.

His does Australia balance its books on something like this? How do the economics of it work? Would it lower Australian inflation but shortening the money supply, and raise inflation of the destination country as it prints more money to exchange the Australian dollar?

Hillock,

The amount that is sent out is just irrelevant. Furthermore, not all immigrants send money out. The second biggest group of immigrants are from the UK, they aren't sending much money home and any they do is offset by Australians who emigrated to the UK sending money to Australia. Other immigrants even bring in more money. For example, overseas students bring a lot of money into Australia, often at a premium. The same degree costs a domestic student 45k but an overseas student 170k. The business and innovation visa requires a minimum of 2.5 million investment. While there are probably more immigrants sending money home, the amount others bring in offsets a lot of that. It's similar to tourism. Yes, Australian tourists going abroad spend money elsewhere, but many tourists are coming into the country and spending money.

With companies, the situation is more difficult. While in theory, they are subject to paying taxes in Australia and aren't any different than local companies there are indeed ways around it. Most notably, having to pay the foreign parent company huge "franchising fees" or other "consultation fees" that reduce profit inside Australia, and then the profit gets taxed in a country with little or no corporate tax. And Australian companies use the same loophole as well. Registering an offshore company isn't particularly difficult. That is indeed something countries try to work against.

Any legitimate money sent abroad is mostly offset by Australian companies doing the same. It's not like there aren't any Australian companies working globally.

The reason why most countries don't go harder against that is that it would hurt foreign relations. And the damage to foreign relations would hurt the economy more. If everyone starts to count pennies and tries to maximize their own profits, every international trade becomes more expensive.

For example, the Indian-Australia trade agreement is vastly in favor of Australia. Australia is exporting goods worth over 19 billion a year while only importing around 7.5 billion. If Australia suddenly started to make it harder for Indian immigrants to send money to India, you can be sure that India will start taxing Australian goods more in retaliation.

In conclusion, going after this hard would mostly be penny-pinching and hurt the economy more in the long term. And countries that make this harder are suffering because of it. Look at China, where it's impossible to operate a foreign business. Any business needs to have a 51% share owned by a Chinese. And while this worked in the short term, companies are now leaving China en mass and taking their business elsewhere.

mister_monster, (edited )

So all countries account for some amount of currency that is circulating outside their borders, even countries with strong capital controls account for it unless theyre dumb or corrupt.

Australia is a good example, let’s say some guy sends 1000 AUD to Vietnam, his family trades it for Dong, who wants to sell Dong for AUD? Probably someone who wants to buy something from Australia, since that’s the place where people sell goods and services for AUD. The currency exchange markets basically facilitate this roundabout way of getting the money to the person that’s going to spend it in the country it’s from. Whether the guy’s family goes to the airport to trade it or a remittance service trades it, ultimately it winds up in the hands of some guy that is going to spend it in Australia (or the Christmas islands or somewhere that uses AUD).

(Note: this is not exactly the case with USD and EUR and other currencies held by foreign countries as reserves and used by foreign countries as their currency, it’s a little different with regard to those)

What that winds up meaning is that at any given time, some percentage of circulating supply for AUD is outside of the country at all times. Keep in mind, in the above example, the Dong never leaves Vietnam. These relationships with other countries are asymmetrical; the countries one currency is remitted to isn’t reciprocated back and forth. There aren’t a lot of Australians sending Dong to Australia working jobs in Vietnam.

Also bear in mind the weak but existing relationship with export this has. Some portion of those people that want AUD in Vietnam are buying goods from Australia to import to Vietnam (or elsewhere), but not all. And the money is just a representation of wealth, the real wealth is the things we produce. So those imports and exports are what countries are actually concerned about, and what actually affect the economics of a country more than currency movement.

52fighters,
@52fighters@kbin.social avatar

The effect is deflation but that's usually offset by deficit spending.

nxfsi,
  1. Have non-shitty standard of living
  2. Don’t be authoritarian/fascist
  3. Get the smartest 2nd- and 3rd-worlders to immigrate
  4. ???
  5. Profit

Example: literally any country in west Europe

Counter-example: Russia, China, Hong Kong

neuromancer,
@neuromancer@lemmy.world avatar

deleted_by_author

    •
    Art3sian,
    @Art3sian@lemmy.world avatar

    Well, I don’t know. Let’s say a Bangladeshi guy earns $1,000 AUD and sends $500 home each week, then lives off the remainder.

    He’s only contributing to the Australian economy $500 per week instead of the full $1,000 in bank-invested savings or other purchases. Meanwhile the other $500, minus an exchange rate, sits in another country’s bank or contributes to purchases there, fuelling that economy.

    I mean, I’m guessing here. My economics knowledge is fairly limited.

    smo,

    That 500AUD doesn’t just sit in an account and magically contribute to anything.

    Currency exchange doesn’t actually happen in a vacuum. The only reason your Bangladeshi example is able to send 500AUD to his family, is that someone who has Bangladeshi Taka wants 500AUD to buy goods or services from somewhere that accepts AUD. And there’s a very short list of countries that spend AUD.

    So that 500 doesn’t disappear to never return. That 500 is sold to someone who wants to use it to purchase australian exports.

    fiat_lux,

    He also contributes his labour, he is frequently underpaid because of his noncitizen status and because he is from Bangladesh he has to have his own medical insurance until he jumps visa hoops. Those visa hoops are also expensive and people from countries like England don't have to jump some of them because they have a Medicare reciprocity agreement in place. There are other challenges too.

    Make no mistake, Australia scrapes every cent it can from foreign workers and still complains about them sending their families remittance.

    massive_bereavement,
    @massive_bereavement@kbin.social avatar

    Plus he is contributing to the workforce without having cost a penny for his/her upbringing.

    We need to consider that educating and taking care of children up to working age costs money and resources. Having trained workers join your country for free is always a boon (unless other costs add up).

    fiat_lux,

    Great point. Plus he has been screened to exclude people with disabilities. Only the people least likely to use future resources are allowed in at all.

    mister_monster,

    Yes, but he’s actually producing wealth in Australia. The things he does serve Australians, the products he makes wind up in Australian homes, and when they don’t, when they get exported, that same amount of capital he exported and then much more winds up flowing back into Australia.

    Remember, money isn’t wealth. Money doesn’t fuel an economy, production does. And it does more than fuel an economy, it is the economy.

    puppy,

    If you didn’t have that guy working in Australia, your economy either would’ve shrunk by more than 1000 AUD or you would’ve imported goods or services costing a lot more than 1000 AUD. That guy’s employer pays him 1000 AUD because it is profitable compared to the alternatives.

    If you had locals capable of doing the same work, that employer or the government wouldn’t have sponsored a foreign worker. They would’ve employed a local instead.

    greyscale,
    @greyscale@lemmy.sdf.org avatar

    Well those australian dollarydoos aren’t useful in their home countries, so it is used to buy domestic money at an exchange.

    MooseGas,
    @MooseGas@kbin.social avatar

    The other responses are missing this point. This is the right answer. The AUD does not actually leave the country. If money is being sent to America, it is converted to USD first. In theory, the value of USD increases since there is greater demand and the value of AUD decreases. This is the mechanism of exchange rates.

    Obviously, it gets a little more complicated than this, but in theory that is what is happening.

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