As we had learned in other countries, there can be an art to exchanging money and purchasing goods. In many countries, the US Dollar (this could be the British pound or Euro as well in these countries) is still seen as more valuable than their own local currency. Some countries, particularly those whose financial structure is less stable, have multiple exchange rates. There is always the official international bank rate for every country, however, for developing nations there can often be 3-4 different exchange rates depending on the country, how stable it is, and where you are in the country itself (the exchange rate in the countryside tends to be better than in the cities).
The rates are based on a number of factors. The bank rate is calculated on the international banking industry’s evaluation of that country and its economic stability and is generally the most conservative and favorable for the country and less favorable for those exchanging from their country.
Once inside the country (beyond the airport), there is often a slightly more favorable (sometime even significantly more favorable) unsanctioned but condoned exchange rate from exchange houses other than banking institutions themselves.
Here’s where it gets interesting. If you don’t ask the question “what kind of exchange rate can you offer for XX US dollars?” at an exchange location, you will most likely end up with the bank rate. Plus, the more money you have to exchange to local currency, often yields a better rate.
You can get an even better rate in these countries if you take your US dollars directly to the store itself, that is, if you plan on spending a fair amount of money (over $100 US). Many local shop owners look at currency in this order from most favorable to least favorable:
- US dollars (cash only) – they can find even better rates than are available to tourists/visitors and it works well for them.
- Local currency (cash only) – still better than credit for the store owner.
- Credit cards – even though they’re convenient, credit cards tend to hurt the local shop owners in other countries, as they are forced to a) only get the exchange rate and b) pay the credit card company a percentage that we’re guessing is higher than what shop owners in this country pay. Essentially they make the least money for this transaction, that’s why they’re willing to negotiate with cash, they’re splitting the loss if the sale was by credit card.
Credit cards generally work best in the more economically stable countries as your exchange rates for services such as tours, meals, and other standard items that you probably can’t negotiate.
Be aware – a lot restaurant owners ask if you want to pay in US dollars or their country’s currency, but if they don’t find out if they have their own exchange fee. You can avoid this if you:
- Have a credit card that doesn’t charge an exchange fee, and
- Insist the restaurant charge your meal in the local currency.
Then, as there is an every country (even the US), there’s a black market exchange rate, which we do not advise taking advantage of, no matter how tempting it may be (we’ve seen some that were 4 times the bank exchange rate). You don’t know where it came from, who is watching, and what trouble you could end up in (jail for life in some countries for Americans).