I’m never fully understood how currencies fluctuate beyond a layperson’s understanding of inflation/deflation, but still always assumed that $5 is $5 regardless of what currency it’s coming from or going into. But recent experiences have made me question that. M Not sure if this is the best way to ask my question because I think i actually have multiple closely related questions, so I’ll use examples instead:
My dad was recently in southeastern Europe and tried to pay for something at a store – they asked if he had dollars (or the local currency, i can’t remember) because it’s cheaper that way. If something costs $5, and I just exchanged the money into local currency, the merchant should be getting 5$ worth of currency regardless, no?
We went to Argentina in the spring, where it’s common for travelers to exchange dollars for pesos at non-government exchanges for a better rate. How does this happen? Are these exchanges getting dollars for less somehow, and thus able to offer better rates?
Again, I assume these questions are related, but what are the underlying concepts here? Thanks in advance!
EDIT: thanks everyone! I think between each of the responses I understand what I was missing!
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Quick answer: if unofficial currency exchange booths are giving you a better rate for USD than the official financial system (banks etc.) does, it is because there are currency controls in place.
People in Argentina want dollars (say, for inflation-protected savings or to pay for imports) but the govenrment does not allow them to get those dollars at the offical exchange rate (there are not enough dollars in Argentina to satisfy demand). So the official rate is a bit of a fiction: not everyone has access to it. Therefore, those unofficial booths overpay for dollars (giving you a great rate for your USD) because they can sell those dollars for even more on the “black market for USD”.
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