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Traveler’s Guide to Money in the Developing World

I'm often asked by friends who are coming to visit me in far flung places (especially in the developing world) what kind of money should they bring. So I wrote some details down rather than answering the same questions in email over and over. There are pros and cons to all the options; the options being:

• Local currency. Buying currency of your destination before you leave home.
• Other currency in cash. Just bring cash from home or bring US dollars or Euros.
• Traveler's cheques. Often there's a currency decision here too.
• Using your ATM card
• Using your Credit cards for charges and cash advances.

The banks are experts at gouging customers who are traveling; we tend to worry less about such issues on vacation but both your bank at home and the bank or money changers you use when traveling may be taking advantage of the situation in ways you are not fully aware of. It's easiest if we talk about each of the options above. Note that parts of this discussion primarily apply to Canadians and Americans. European banks do things a little differently for their customers.

Local currency

It used to be the rule to buy at least a little of your destination currency before you left home. At least enough to take a taxi for example. But unless you're buying US dollars or Euros or some other very well known currency, you are likely to have a hard time finding the currency at home and could pay an exorbitant amount (as much as 10-20% extra) for it. It might not be reflected in the fees but in the exchange rate used. You may even get banknotes no longer in use! Now that for most destinations you can expect an ATM right in the airport this option is less useful. Failing a working ATM there is generally a money exchange booth, which although it will probably give the worst rates or charge the highest fees of any place in your destination country, it still likely better than your bank at home. That said, if you're arriving at midnight you might want to consider this option. ATMs in the developing world do tend to be less reliable than at home. They run out of money or just don't work with your card. See the ATM discussion.

Other currency in cash

Bringing Norwegian Krone to Costa Rica is just asking for hassles. Bringing US dollars on the other hand is a no brainer. It seems that most countries with any substantial tourism development generally have one currency they're accustomed to handling. In Latin America, the US dollar. In Eastern Europe, the Euro. And in this situation, cash is very helpful. Often one can avoid the worst exchange service fees by showing up with cash – as long as it's the right currency. And there's often a very competitive market for exchanging cash. Look at the endless exchange booths in Mexican tourist towns for the US dollar. But, for example, converting your Canadian dollars to US dollars before you go to Mexico is less helpful because you'll pay 2-3% minimum on each conversion. However, this may be an alternate solution to bringing enough local currency so you can get a taxi from the airport, etc. If you know the US dollar (or Euro) is widely accepted, do bring a little in cash. Your taxi driver may not give you the best exchange rate but he will accept it. Actually in many places the taxi rate from the airport will be quoted in dollars anyway. One warning on cash: the bills must generally be perfect. Don't bring that ripped US 20 to Guatemala, you'll just end up bringing it home.

Traveler's cheques

Traveler's cheques are becoming less and less useful every year and as they become less common, the banks hike the fees to exchange them more and more. And you may end up spending your vacation in line at a bank. These are a great backup plan to have in case of emergencies but I don't see any advantages really over using an ATM card (unless that option isn't available). Generally the fees are higher than ATM anyway and you'll want to exchange fairly large amounts into cash at any one go, to avoid spending all your time in bank lineups. But it's not a bad idea to have a small stash for emergencies that you don't plan to use (or you'll use at the end of your trip). If you do, carry American Express. Other types are much less widely accepted.

ATM cards

The wide availability of ATM machines has hugely simplified traveling for me. No more careful planning what I'll need for an entire trip before I go. I just take out money when I need it just like home. One difference from home is that I'll tend to take out larger quantities at each go for two reasons: to reduce the amount of service fees paid and to make sure I don't run out of cash in more remote areas. ATMs are by no means a free ride. Your bank at home will skim about 2% off the top in the exchange rate as well as charge you an extra fee for the international withdrawal of about $3. For example, when I used a US ATM card in Costa Rica, I would get an exchange rate of about 460 colones to the US$. I could've gotten 465 for cash locally. And if I stood in line at the bank, probably about 467. So if I withdraw $200 from a US bank in Costa Rica, It'll cost me $203 (with the service charge at home; generally the ATMs themselves don't charge a fee like the American ones do) and I'll get about 92,000 colones for my $203. If I was to take $203 cash into the bank, I'd get 94,800 colones. Or about 3% more in total. But you know, you'll always pay for your money exchange in some way so this convenience is worth it for me.

Do get familiar with the exchange rate before you go. I've had friends after long flights try and figure out what to take out of the airport ATM and ended up withdrawing the equivalent $3 instead of $300. It's difficult to do the opposite (withdraw $3000 instead of $300) since ATM withdrawal limits are often lower than at home.

One caveat: there are a few countries in the world where ATMs are not reliable (e.g. Guatemala has plenty of ATMs but I and several friends have had the problem of a failed ATM withdrawal being deducted from my bank account anyway; several months of hassles followed) or don't exist (e.g. Cuba, where virtually none of this discussion applies). Also don't expect ATMs to be as reliable as back home. They'll run out of money on a weekend (so don't wait until Sunday night to use the ATM before your planned weeklong remote jungle trek leaving Monday morning), they'll be out of service, they won't work with your card (even if they do have the right symbolólook for the Plus or Cirrus symbols on the ATM and on your bank cards). And all these things will happen at the most inconvenient time. I'd also recommend checking your bank transactions online from an internet café to make sure the funds are coming out as you expected; especially when you've had failed ATM transactions).

You may also get to be a millionaire for the first time in your life since your balance is often shown converted into local currency. For example with the Indonesian rupiah at 0.000128 to the Canadian dollar, you'd only need $128Cdn to have more than a million rupiahs in the bank!

Credit cards

Credit cards are a convenient way to spend money but they are not free either and not all credit cards are equal. In the example above, while my bank was giving me 460 colones to the dollar, one of my credit cards was only giving me 450 to the dollar while another was giving me 460l. Banks have been hiding exchange rate fees in their credit card agreements more and more each year.

Another problem with credit cards is that merchants in the developing world are often loath to accept them because of very high processing fees (often 8 or 9%) that they must pay. So if you expect to use a credit card for that hotel bill, expect your bargaining power to be significantly reduced than if you were asking for a cash price. It's not uncommon to hear that 'if you use a credit card, I have to charge you tax' or 'I can give you a 10% discount for cash'. That can really add up. Small businesses of course won't even accept them. And I'm hesitant to use them anyway when they do: if I'm paying by credit card, I'm depriving the local small business owner of a good percentage of her profits and giving it to the banks instead.

Credit card cash advances are another option. Just know before you go, what kind of fees your bank will charge on this. Also, find out or setup a pin code on your credit card so you can use it at an ATM. Generally if you can get a cash advance on your credit card from an ATM, you won't pay any local fees, just the ones to your card issuer. If you must go into the branch and sign all the forms, they'll usually charge you a fee upfront as well.

Hope this helps! Here are some more helpful links:

• Note that the situation in Cuba is substantially more complex, especially if you're carrying US cash. The best information I've seen is at is on this forum post.
• For worldwide exchange rates, try www.xe.com
• For exchange rates with the Canadian dollar and all other currencies, the Bank of Canada website is best

Subscribe to TravelBlogs Posted by Doug Dosdall on March 27th, 2005 in Articles.