Converting hard earned USD into cash that is usable in other countries makes many otherwise confident people anxious. Before exploring the details I will get to the punch line – travelers should almost never exchange currency. No one should be carrying around wads of US cash to pay for their trip. Rely almost exclusively on withdrawing cash from ATMS, using your bank debit cards – see Cash and, increasingly, contactless payment.
Install a currency conversion like Currency on your phone (works offline) and add the destination currency to your active before you fly. A few times I forgot to do this and on arrival, before my phone service connected, I stood blank eyed at an ATM screen, trying to figure out how much 1,500,000XYZ currency equated to ‘in real money’. From then on it is most useful to remember roughly how much a round number of local currency equates to. Thus $10Fiji ~ $5USD.
You might not even need a different currency. All US Territories, like Puerto Rico and Guam, use USD. Some countries, such as Ecuador or Zimbabwe, use USD as their official currency. Many other countries, like Liberia and Nicaragua, freely use USD alongside their own currency.
Some places you will definately have to bring your own cash. For example, in Sudan, the banking system has not recovered from embargoes, so there are no ATMs in operation. Until recently Myanmar was in the same situation and, if you did not deplane from Thailand with a wad of USD you were simply placed on the next outgoing flight.
An important caution here. If you are bringing US banknotes on your trip, be sure that they are in pristine condition (no rips or markings) and of recent minting (I have seen signs at money exchange shops that explicitly state acceptable vintage cutoffs). While scrutiny of banknotes varies widely (on St. John they expect your banknotes to be worn and soaked in salt water) I have had notes rejected in several places for being worn, or marked, or too old (including in the ‘visa on arrival’ area of an airport, when fees had to be paid in USD).
For all those places where you will need local currency – a quick primer on exchange rates. Every money changer will have a Buy and a Sell rate. For example a storefront operation in San Marino might Buy your USD at a rate of 0.90EUR per USD. If you immediately turn around and sell those EUR back to them (in an act of pure masochism), they may Sell you USD at a rate of 1.00EUR per USD. The difference between those rates, 1.00-0.90, or 10% is the spread. Dividing that spread by two, yielding 5%, is roughly the price that they are charging to execute a single transaction. They are taking 5% of the total value of your money, so that you can spend the remaining 95%.
Buy/Sell spreads vary wildly between countries, and I have no idea why. It does not seem to have to do with political stability, local currency strength, or political leanings. For example, in Beirut this morning (with people rioting in the streets), the spread was typically less than 1%. Recently in Bolivia (facing a nationwide crisis), the spread was also small. In Transnistria (which is not really a country, and whose local currency is not traded any where else in the world) the spread was tiny. Yet in Paraguay (which is stable), spreads on some currencies approached 80% – they take 40% of your money! While in a New York airport (insert opinion here) they are so embarrassed by the 25% spread that the conversion rates are sometimes listed in odd ways (‘sell 300EUR for 400USD’) to make the mental math more complicated.
Here are the options available for sourcing foreign currency:
Many tourists buy foreign currency at a local bank, or online from their bank before the start of their trip. This may be the ‘least awful choice’, especially if you are nervous about finding an ATM on arrival. Limited currencies are on offer and, in addition to a transaction fee, the spread is likely to be unfavorable. Visit your local bank to check the costs.
Some exchange currency at a storefront operation like Travelex. Fast and easy, but with a hefty spread. This is simply throwing money away for no reason. I do not recall the last time I used this vendor.
Many people exchange money at a kiosk in the arrivals area of their destination airport. In the majority of cases there will be ‘no transaction fee’, which sounds great. In reality the cost is built in to the spread, which may be costly. Maybe four times a year I get stuck with no ATMs available and have to use these services. If you have to use one, check the spread to see how much the transaction is actually costing you, and exchange a small amount of money to hold you over until you find an ATM.
Some central banks set official exchange rates that are wildly depressed and try to monopolize the money exchange sector, thus providing them with discounted hard US currency. Money changers on the street can offer better rates. For example, in Khartoum recently the bank exchange rate was 50 Sudanese Pounds per USD. Ten steps outside the street rate for slightly older US greenbacks was 75, and it was 90 for crisp newly minted bills – an 80% better rate. I was really surprised to learn while in Argentina that ATMs spit out 110 Pesos per dollar, while the guys changing cash in the street offer 190. This last example taught me once again to try to avoid falling into my own heuristic expertise traps. Five minutes spent on exchange research before boarding the ’plane would have saved me roughly $1,000 on this trip.
The sidewalk exchange is ‘unregulated’ to say the least, and is illegal in some countries. Needless to say there are a number of variables to consider before conducting a transaction. That being said, take advantage of this option if it makes sense. Sometimes it is the only option available. I have used street changers in Karachi, Pakistan; in Nouakchott, Mauritania, and on the Liberia/Sierra Leone border. In Somaliland the changers sit next to literally pallets of cash covered by nets. I suggest asking a couple of street changers (out of sight of each other) their rates before even considering exchanging cash, to get an idea of local rates and range of variation. Use the calculator on your phone to have a visual confirmation of your verbal contract. Speak slowly, move slowly, count carefully. Bear in mind that these professionals are doing this for a livelihood. If you do not have good information about current rates they may take an additional 5% haircut, but very few are trying to rip anyone off, and if you find out later that you ‘overpaid’, that is on you.
As you prepare to leave the country you will of course be trying to use up every scrap of the local currency (unless it is USD and EUR, which you always want to have a stash of). It is easy to forget that many countries charge visitors an exit tax. Most of the time this is included in an airplane ticket price, but in some places it is levied at the point of departure (just got tapped $65WST exiting Samoa.) Check on this before you use up all your local currency.
Despite decent planning, I occasionally get surprised. I got stuck with about $40 in TND in Carthage airport in Tunisia. The duty free shops would not accept this cash, and even the money exchange kiosks would not convert their own national currency. I ended up with a lot of candy bars in my pack, and the woman in the airport cafe received an amazing tip.
Nearly all the time I am carrying three different currencies at the same time. I always keep them separate, and always carry them in the same places (think EUR in right sock, USD in left sock, local currency in left pocket). Once, in Accra, I failed to follow my own rule. At the end of a taxi ride after dark I paid the driver with a fistful of bright banknotes. Only later did I realize that I had used EUR instead of Ghanaian Cedi – overpaying sixfold, which I am sure the driver immediately noticed and, in silence, much appreciated.
