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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lets use turkey as an example since i don’t know anything about argentina. their currency, the lira is currently in a nosedive relative to the more stable currencies around the world like dollar and euro.
that means if you keep your money in Lira, it will loose value over time. if you have enough lira today to buy 100 apples, it might only be enough for 80 next year. however, if you keep your money in dollars, you’ll still get the 100 apples.
many places with a somewhat unstable currency make it hard to exchange money. people trying to preserve their life savings by exchanging to a more stable currency actually make the nosedive worse. in these places, it’s usually relatively easy to exchange smaller amounts of cash, but much harder to exchange large amounts of money saved in accounts. these unofficial places also usually only offer a good exchange rate in one direction. you’ll get 100 lira for one dollar, but if you want to do it the other way around, especially with serious amounts of money, it can easily be something like 150 lira to one dollar.
if you’re a merchant in a place that suffers from an unstable currency, it can therefore make sense to accept dollars at a favorable exchange rate. you can then keep the dollars as your life savings. or you can head to the nearest exchange place and get the local currency to use in everyday life.
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