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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Dollars are a stable currency. They are what’s called a reserve currency- a small member of currency that have a much higher value than most other currencies. Others Include the Pound Sterling, Japanese Yen and the Euro ( previously it was the Deutschmark). They are issued by politically and economically stable countries/blocs.
Because these are stable currencies people importing goods ( say in the country your dad visited) will often have to pay for imports in dollars for example. But to get dollars they’d have to exchange local currency for which they’d be charged a fee. Also the value of local currency can fluctuate relative to the dollar so it makes pricing difficult and they may have to effectively pay alot more if local currency weakens relatively to dollars.
If however the shop keeper sells in dollars, they can then use dollars to buy imports- they save on the fee and eliminate the uncertainty due to exchange rate fluctuations.
Essentially because the value of dollars is more certain, the person selling to you will give you a slightly better price to reflect that certainty.
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