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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The value of money is what you can purchase with it tomorrow. If someone takes $5 for something, it’s because they think they can purchase $5 of stuff with it. If you won’t be able to purchase as much with it later on, you’ll demand more of it now. Because Argentina keeps pumping out money (making each individual peso worth less), forbids its people from exchanging pesos for dollars at their real value, and prevents its people from getting their money out of the country, having a dollar is *a lot* more valuable than having a peso. People will give you more goods and services to get a dollar, including more pesos than the government says they are allowed to give.
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