The era of globalization has been the hallmark of the recent decade with increased foreign trade, travel, and sticky financial issues like foreign exchange rates. For the domestic vacationer that is suddenly desirous of a little more adventure, exotic locales are beckoning for your leisure dollar, and competition in the airline industry is so fierce that, even with increased fuel costs, bargains can be had for most heavily traveled routes across the globe. Timing is everything, but that need not be an issue when it comes to foreign currency exchange rates.
THE BEAT UP DOLLAR NEEDS HELP
From a currency perspective, the U.S. Dollar has been on a depreciating tear since last June, a reflection of the Fed’s program for quantitative easing. The Dollar Index has actually fallen 17% over the past eleven months, making things more expensive overseas and making the United States a wonderful destination market for foreign global wanderers.
As long as our central bank keeps pumping money into the system, our purchasing power will continue to erode, which means more depreciation versus the other major currencies. Appreciation will come when our economic recovery is on more stable ground, employment improves, and the government stops artificially interfering in our capital markets.
EXCHANGING MONEY IS QUITE EASY AND CHEAP
Traveling overseas is a lot easier than it used to be when it comes to having legal tender for purchases. You do not have to choose from a host of forex brokers to acquire currency before you leave our shores. The major credit and debit card issuers have leveled the playing field when it comes to protecting consumers. Visa and MasterCard buy funds on the Interbank Market at rates worthy of $5 million purchases. They pass these rates onto you, but each bank will levy an additional fee for the service, since supporting international travel is more costly for them.
Check your card agreements to see which fee is the smallest. They generally range from 2% to 3%, but some may be higher. Choose the lowest fee card, and remember to use that one at ATM’s, restaurants, hotels, or whenever you make purchases. Use an ATM for pocket cash only, and plan your needs wisely because no one will exchange coins or small bills for you later. Let your kids have the change when you return.
I’d advise using travelers’ checks or exchange dollars at the airport, hotel, or train stations. Companies in the currency exchange business will charge exorbitant fees and non-market exchange rates for these small conversions. They must generate higher fees to pay for their obvious overhead of staff and shop windows. They rely on convenience as their watchword, but rates will climb to effective markups in the 5% to 10% range, especially if you purchase outside of a country. Rates are generally lower within the destination country.
WHERE TO GO?
Since the U.S is a now a low-cost currency market, look for countries like the Caribbean, Hong Kong, Singapore, and other countries that link their currency to the U.S. Dollar. In fact, did you know that there are other countries who use the US Dollar as their official currency? They are: The British Virgin Islands, Panama, El Salvador, East Timor, The Marshall Islands, Palau, The Northern Marina Islands, Ecuador, and the Turks and Caicos Islands! Who would have thought that the United States isn’t alone in getting screwed by a depreciating currency!
You should also consider never leaving the United States and experience our great country for what it is. Places like the Grand Canyon, Yellowstone National Park, The Rockies, Hawaii, San Francisco, New York City, Chicago, Taos, the Pacific Northwest, and the great NorthEast are all fantastic places to go. If anybody ever stops by San Francisco, don’t be shy and shoot me an e-mail. If I’m around, I’d be happy to take you out for a drink!
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Updated for 2015
Vacationing in the US is not a bad idea while it is so expensive elsewhere. Wait for the pendulum to swing the other way, then visit foreign countries. If I am ever in San Francisco, I will look you up.
I’ve been waiting for the pendulum to swing for 15 years now :) Definitely ping me!
Hopefully you have owned precious metals during those 15 years then. If so, the currency issue does not loom as large.
It would have been nice to dump my life savings into precious metals 15 years ago, but alas, I’m not smart enough to do so!
We’ll be vacationing in the US for the next 5 years. Once the kid is a bit older we’ll think about international trips again. Usually we just use the ATM to get the local currency. It worked well and I’m pretty sure the fee is cheaper than Visa. The credit cards are good for big bills like hotels.
Sounds good. It’s part of the reason why I chose Citibank as one of my banks, since they are global and have ATM fees and branches everywhere. In fact, it was my #1 reason why I chose them way back when. Glad they didn’t implode!
There’s SO MUCH to see in the US, that with the weak USD, it makes a whole lot of sense to explore our great country. I love going to Hawaii myself and spending time on the islands.
Perhaps the USD will strengthen in the future, just in time for me to retire!
Traveling in the US is our biggest priority in the next 10 years. It’ll be a lot cheaper and easier with the little guy along. I haven’t even been to NYC or Yellow Stone. Those are my top 2 destinations and we’ll try to get there soon.
My dh always says there is so much in the US we haven’t seen yet! It’s so true. For a tropical vacation, if Hawaii is not affordable remember you can have a great trip to Puerto Rico with no passport required. We loved the beaches there & the well-preserved fort of El Morro, the rain forest, and the old part of San Juan for an old world feel. Great vacation for much less than a trip to Europe! We found a great beach house from VRBO to accommodate our extended family. Plus almost everyone speaks English there & will be patient with your Spanish if it’s not perfect. Very friendly people! Loved it at Christmas time!
This is interesting – for us. As Canadians our currency is doing quite well in the world, but, the US has become a PRIME vacation destination. With our loonie being about $1.04 vs the USD, and given everything seems to cost 20% less in the US than it does in Canada – we can’t wait to explore the USA! We’re going to Chincoteague VA in June and can’t wait. Diners Drive Ins and Dives road trip – woot!
But if we want to go international, we still (finally) get great rates on the USD.
Awesomeness for Canadians.
Hmmmm…. out of ALL the great places in the US, you are going to Chincoteague, Virginia??! Let me help you with some more interesting places! Go to Hawaii at least! :)
Yes, we are making our list for a Diners, Drive-Ins and Dives vacation too! We’ve gone to one of the featured restaurants so far & it’s still a great memory! Guy did not disappoint!
Summer Vacation? Hmmm, I’m still considering Puerto Rico. It’s a pretty cheap flight from the ATL and prices are about the same or cheaper. I’ve tried to figure out a way to get cash from the forex rates I trade. Those are always way better than the rates I see posted at airports.
We’ll be doing the annual vacation with my brother/sister in law on eastern Long Island. Last time, we were in England I used an ATM at a correspondent bank of my US bank. I paid no fees the exchange rate.
If you are headed to South East Asia take the Canadian dollar. You get ripped off using USD. Also, Cambodia uses the USD as their main currency so don’t bother converting to any Reil.
Sad to see the dollar in this state, looks like it’s turning around a bit. Guess got lucky with my international travels last year? Great point about seeing the US more. Have to start making plans!
Hello,
I really enjoyed reading this very informative post. I plan to refer to it often as we do travel a lot! My husband and I usually exchange at bank in the U.S. before we go. We find we get better rates here.
I try to exchange money before leaving home when I go abroad. The fees are usually better than at the airports and there’s never a line. It’s one less thing to do after getting off a looong flight and the vaca fun can start sooner!
We lost about 1/3 of our purchasing power when we went abroad to Austria for our honeymoon. Oh well:). Great to find a list of countries where we could make out in with a weak dollar!
Its nice to know that there are other countries where we could visit where they link USD to their currency, However, it is best to travel within the states and discover our culture and history first before travelling to other countries,
CCs have been the mode of choice, supplemented by cash from low cost currency exchanges. Also helps to have a bank account with a global player like Citi, where the rates charged on ATM usage is relatively minimal
I’ve only seen the northeast part of the US, so much out there to explore! As for the US depreciating, meh, better for me with my CDN dollar if I go visit, but not so great for revenue in USD.
I do have to disagree with the tip to vacation in the U.S. to save money. While I love traveling to the great sites around the U.S. (the Grand Canyon, the Hoh Rainforest/Olympic Peninsula, the Rockies, etc.), I’ve definately found it to be much, much cheaper to travel in countries in Southeast Asia and South America where the cost of living is lower. Even with the dollar being low, $15 is considered A LOT of money in places like Thailand, India, Cambodia, Burma and Vietnam.