Financial Development and Macroeconomic Stabilisation through Remittances? Potential Contribution and Modes of Governance* Barbara Fritz, Christian Ambrosius and Ursula Stiegler March 2008 First Draft – Do not cite without permission of the authors Abstract While up to now research on remittances has strongly concentrated on questions linked to poverty reduction and the use of remittances, we emphasize the potential impact of remittances on financial sector development and on macroeconomic stability. We base our research on the assumption that the impact of remittances on the financial system depends on several factors, namely the total amount of remittances sent, the stability and cyclicality of remittance flows, the share of remittances sent through formal channels, the adaptation of financial services to small scale remittances receiving fami- lies, and whether remittances are held in local or foreign currency. Based on these assumptions we map different policy options and present examples from the Latin American context which potentially contribute to the goal of financial development and macroeconomic stabilisation. Keywords: Remittances, Financial Development, Macroeconomic Stabilisation, Policies Barbara Fritz Freie Universität Berlin Rüdesheimer Str. 54-56 14197 Berlin Germany bfritz@zedat.fu-berlin.de Christian Ambrosius Freie Universität Berlin Rüdesheimer Str. 54-56 14197 Berlin Germany christian.ambrosius@fu-berlin.de Ursula Stiegler Freie Universität Berlin Rüdesheimer Str. 54-56 14197 Berlin Germany ursula.stiegler@fu-berlin.de * This paper summarizes the theoretical framework and the main hypotheses of a research project on ‘Migrant Remittances, Financial Development and Macroeconomic Stabilisation’ at the Special Re- search Area ‘Governance in Areas of Limited Statehood’ at the Freie Universität Berlin. We thank the German Research Foundation for financial support.