When I was in sixth grade, my father had to go to a conference in Mexico City; for some reason or another, he brought my mother and I along. It was my first trip out of the country, and directly led to my first experiences with altitude sickness, Montezuma's revenge, sangria, and hangovers. It was a great trip.
I also learned about the high price of exchanging currency. Every morning, I would go down to the cambio, or currency exchange, in the lobby of our hotel, where I would compare the exchange rates for dollars to pesos to the exchange rates for pesos to dollars. I quickly learned how the cambio made its money in a business that seemed unprofitable. By charging more for pesos than for dollars, they made a little bit of money on each exchange. Adding in a modest transaction fee, they quickly turned a tidy profit.
I also learned that some stores were willing to accept dollars instead of pesos. The retailers would use the published exchange rates, but wouldn't charge for the transaction, which meant that I saved a lot of money by paying with dollars. Later, when my father and I went to Europe, I discovered that the process of accepting dollars wasn't limited to Mexico. It seemed that, whenever the dollar was strong, shopkeepers would try to cash in on tourism by shortcutting the need for currency exchanges.
I thought about this recently, as many retailers in New York City have begun accepting Euros from tourists who are looking to save a little money. What is particularly interesting is that the opposite has also occurred: European stores have begun to refuse dollars. On the one hand, the willingness of American retailers to accept the Euro indicates that American goods are attractively inexpensive, which bodes well for our manufacturers. On the other hand, I'm unnerved by the fact that retailers in other countries see American currency as an unstable investment.
Of course, I can't blame them; this week, the dollar reached a new low; it currently trades at $1.50 dollars to the Euro. Now that I'm on the other side of the deal, I find myself wondering how those Mexican shopkeepers felt when they saw the little gringo walking in with his Yankee dollars.
Bruce Watson is a freelance writer, blogger, and all-around cheapskate. Now that he thinks about it, there might be a few Euros lying around the apartment...