One of the topics most travelers have in mind when going abroad is how to get the local money of the country they are traveling to. Over the past 7 years on the road, I have learned (by actually losing a lot of money in exchange operations) how to do it and, especially, how NOT to do it.
So, being a topic of constant doubts and cause of insecurity for many friends and acquaintances, I'd like to share some hard-learned lessons with whom it may concern.
Whenever possible, always bring with you in an international trip:
I) 2 or more debit cards with the Cirrus and/or Plus flags from 2 different banks. Some ATMs may give you problems with one card, so it is always safe to have additional ones, especially if getting local cash in ATMs will be the primary way of funding your trip;
II) 2 or 3 credit cards, preferably a mix of Visa, MasterCard and AmericanExpress. Some ATMs, hotels and shops' systems may refuse one card or another (nothing to do with the store's willingness to process the transaction, but the machines that do it may simply deny the operation without further explanation). So if using credit cards for paying for hotels and car rentals (usually higher amounts), it is safe to have a bunch of options to try in case some cards are denied;
III) an amount in cash, preferably in US$ or Euros. (See explanation below on how to optimize dealing with paper cash in international trips)
Additionally:
- Do not forget to unblock the debit and credit cards in advance (before you travel) for both international purchases and cash withdraws in ATMs. Many places (stores, restaurants, etc) around the world take international debit and credit cards, so it is very convenient to use these instead of local paper cash. This avoids having to stash loads of paper money in embarrassing parts of one's body;
- Always carry with you an amount in the local currency which is at least enough to cover for a taxi back to where you are sleeping, 2 meals and some spare. In the United States or anywhere in Europe, for example, I usually carry around US$ 150 or EUR 150 with me at all times. (See explanation below on how to optimize dealing with paper cash in international trips)
So, getting the currency of the country you're traveling to is usually confusing and one can lose a lot of money in the process of exchanging foreign cash for the local dime (to poor exchange rates, government taxes and bank fees). Based on my previous experience, there are a few ways how to handle money-exchange operations, and they basically differ based on 2 scenarios (I will use Brazil's currency to make my points, since I know all the fees and taxes that apply):
1 - Going to countries with floating, market-determined exchange rates. These include the United States, Canada, all of the Euro countries, South Africa, Japan, Malaysia, Indonesia, etc. In these places, the government does NOT fix by decree what the exchange rate from their local currency to the US dollar, Euro or any other foreign currency is. The rates in the official exchange shops are very close to the daily rate you see in the news, and there is no "parallel" market, since the market itself dictates what the daily rate is. In all such countries, the following are the best ways of exchanging from Brazilian Reals to the local currency:
a) get money from the local ATMs in the country of destination using a Brazilian bank *DEBIT* card. Banks usually charge you a rate from R$ 8,00 to R$ 20,00 per transaction, but the (very) good news is that each withdraw is done very close to the market exchange rate. Plus, the IOF (a tax) for such transactions is very low, at 0.38% over the total amount withdrawn. And that's it: the bank fee plus 0.38% from the total. Beware: the exchange rates used in these transactions vary GREATLY from bank to bank, although the rate used in these operations is the market rate from the day when the transaction took place. From my experience, Citibank has one of the worst rates to the US dollar and Euro when compared with Itau, Banco do Brasil and others. Last time I used my Citi card to get Euros in Germany, their rate was 5% higher than that from Itau on the same day!
b) take a Visa Travel Money (VTM) card with you. These usually require you to purchase these cards from a bank in your home country, and then you can put a given amount of a foreign currency (usually US$ or Euros) in it and use the card to withdraw local currency in ATMs in the country of destination. The advantages of this is that you know the exchange rate at the moment when the VTM card is purchased/refilled and the IOF is also very low, at 0.38%. Beware that even though you're using a VTM card, some ATMs may still charge you a local fee which may be a fixed amount or even a percentage of the total withdrawn.
c) Take US dollars with you and exchange it locally in the place of destination. The US$ is accepted anywhere in the world as the international reserve of value. So basically anywhere one can convert US$ for the local currency in exchange shops that exist in airports, train stations, bus terminals or financial institutions spread throughout the cities. The advantage of this is that you have immediate and unquestionable liquidity. But this is usually a money-losing operation, since one needs to exchange the original currency for the US dollar (frequently at a loss compared to the market rate) and then exchange the US dollar for the local currency in the country of destination (many times ALSO at a loss, depending on the exchange shop used). Not to mention the stress of carrying thousands of dollars with you all the time, or having to stash the cash in hotel safes and the like. So, there are basically a few tips to follow when using US$ as the main funding for your trip:
-Whenever possible, always prefer options 1-a and 1-b, since they avoid you having to deal with paper money and performing two exchange operations at a loss. Plus, you can plan to get ONLY the amount of money you actually need, with very low taxes and fees;
-Avoid *AT ALL COSTS* exchanging US$ in exchange places located in airports, train stations and bus terminals. These places are tourist traps, and the rates they use are ALWAYS far below that dictated by the "market" in less-convenient places (usually in the town or city where you are going you can find better rates). But sometimes exchanging at a loss is unavoidable; you need to at least exchange enough for a train ticket or taxi, so try to minimize this by exchanging the bare minimum to get you by until you can reach other exchange shops further in the city. If I go to Europe carrying US$, for example, I never exchange more than US$ 100 at the airport, since that is a big loss right there!
d) Use your credit cards for withdrawing local cash in ATMs or paying directly for purchases. This is usually one of the worst options to consider when traveling (if you happen to carry Brazilian credit cards). This is because on top of ATM withdraws and the usual fees, there is also the interest that the bank charges you over the total amount withdrawn. Plus, both for ATM withdraws and direct purchases, the Brazilian government retains an IOF tax at the staggering rate of 6.38% on the total amount. Do the maths: a family which spends R$ 15,000 in credit cards in a trip will be paying R$ 957 in taxes for the government. If they withdraw cash with credit cards in ATMs, there is also the interest for the bank!
2 - Going to countries with fixed, government-decreed exchange rates. The clear example here is Argentina (although Brazil in the early 90's, Venezuela and Cuba could be also mentioned), which has decreed capital controls in the form of an imposed exchange rate to the US dollar, the Brazilian Real and the Euro. The issue itself is not in pegging the local currency to foreign ones, since there are several other countries that do so: Hong Kong, South Africa, even Switzerland to some extent. The difference is that these countries "fix" the exchange-rate (or limit the "highest" rate their currencies are allowed to achieve against a foreign paper) by performing local cash sell outs and/or buy ins. This is perfectly fine, since they are "fixing" the exchange rates by playing with the market's supply and demand. The issue with Argentina, Venezuela and Cuba is that they determine the exchange rate by decree, as if it could be done by signing a piece of paper that tells everyone in the nation to ONLY buy foreign currencies at a particular rate. This is very stupid, since it encourages the birth of a parallel market in which rates are usually a lot higher than the government-determined one. In Argentina right now, for example, the official rate for the US dollar is 5.7 pesos/USD, for the Brazilian Real 2.4 pesos/R$. However, when exchanging US$ and Reals in the parallel market last week, I could exchange 1 USD for a staggering 8.8 pesos, and a 1 Brazilian Real for 3.4 pesos! That's a difference of 54% and 42% respectively to the government-decreed rate! So, in countries where the local currency is pegged to a foreign one by decree, the following would get you the best bang for the buck:
a) Bring and exchange US$, Euros or any foreign currency in exchange shops somewhere in the city (not in airports, train stations and bus terminals, which all use the government-decreed rate!), where they usually use the parallel market's rate rather than the official one. As explained, this may yield a lot more local currency for a single dollar or Euro!
b) VTMs, debit cards: if the option above is not available for any reason, it is still better to use VTM and debit cards for the same reasons explained in scenario 1, above: very low IOF and pretty easy to get money in any ATM;
c) same as item 1-d. Avoid as much as possible using credit cards, since they convert your local purchases and cash withdraws to US$ and then to Brazilian Reals, and then the IOF that applies is the outrageous 6.38%. Don't forget the interest the bank charges on withdraws!
So, these are some of the things I learned during my years out there. Of course, all of the tips above presume that you are traveling to parts of the globe where there is electricity, interconnectivity of the local ATMs to the international, world-class banks and credit card companies.
I've been able to get local currency with my Brazilian debit cards in many places:
-Anywhere in Europe;
-Thailand;
-Hong Kong;
-Japan;
-Indonesia;
-Malaysia;
-The United States;
-Argentina;
-South Africa;
-Singapore
Obviously if you go to the middle of the African jungles or the countryside of Laos, make sure to bring with you US dollars (since it gives you the ultimate liquidity almost anywhere in the globe) or even better the local currency previously exchanged somewhere civilized. There are even places where only gold and diamonds may save your life, but fortunately I've never had the displeasure of going to such places!
I hope this helps beginner travelers avoiding losing money or the stress of buying paper US dollars and Euros prior to traveling - this is how my parents and grandparents had to do it in the 80's. Since the invention of the debit, credit and VTM cards and the internet, withdrawing local cash or carrying a VTM are usually the most convenient ways to go!
Note: related to item III, for the ultimate risk mitigation, if it makes you feel safer and gives you peace of mind, DO carry some US$ or Euros in cash with you wherever you go, even if you intend to use debit, credit and ATM cards as the primary funding for your trip. I simply quit doing so a few years ago, since I trust technology and I always carry 2 debit cards and 4 or 5 credit cards with me.
No comments:
Post a Comment