Travel Finance: Pay In Local Currency
Traveling abroad as an American means you’ll probably experience daily life using a new currency. No, most countries won’t let you pay in cash dollars, but you may be asked if you’d like to pay in dollars when using a credit card. This brings up a common question for new travelers: Do I pay in dollars or in the local currency when using a credit card abroad? Real short answer: Use the local currency. Here’s why!
What Are Exchange Rates?
Not all money is equal around the world because some countries have a currency that is stronger than others. For example, as of November 2024, the U.S. dollar (USD) is stronger than the Japanese yen because one USD equals around 150 yen, yet the dollar is weaker than a British pound because one USD equals less than one pound. Simply put, trading all your dollars buys you many more yen, but far fewer pounds. These value differences are known as currency exchange rates, or the amount that one currency can be traded for another. It’s a pretty straight forward concept but exchange rates are constantly changing.
Exchanges rates are very technical and don’t need to be fully understood for traveling. However, you do need to know if your destination has a stronger or weaker currency than your home country. I use xe.com to check currency values. The site does money transfers but I can’t endorse them for that having never used their services. To learn more about exchange rates, check out this technical read on Investopedia, or this fun yet effective Wikipedia example.
Taking Advantage of Exchange Rates
You will likely encounter a choice when paying with a U.S. issued credit card abroad. The establishment’s card machine will present an option to pay with the local currency or with dollars, the currency tied to your card.
The photo on the right is that exact screen. This merchant was kind enough to disclose their mark up, but not every merchant does - most don’t. Your choice actually does lead to small but different total costs. Over a full trip those small costs add up to a significantly higher one if you choose to pay in dollars rather than the local currency!
Paying in dollars almost always leads to paying slightly more. That’s because choosing to pay in USD lets the merchant decide the exchange rate. They regularly inflate rates in a practice known as dynamic currency conversion. You can avoid that practice by paying with the local currency because that gives your bank a chance to deal with the conversion and likely provide a better rate.
Trust me, and if you don’t, trust J.P. Morgan Chase because their short article on this subject also advises you to pay in local currency. This also assumes you’re using a credit card with no foreign transaction fees (an unavoidable fee the bank charges you for using your card abroad). If you’re not sure whether your card has a foreign transaction fee, just search the name of your credit card and add “foreign transaction fee” to find out.
Real World Examples
Once upon a September 2024 I was buying a domestic flight in Japan. I was using a credit card issued in the United States by Chase Bank, but the flight price was listed in the local Japanese yen since it was domestic.
I chose to pay in yen instead of dollars on the final payment screen without thinking twice. The airline charged ¥20,220 for the flight and reported that as roughly $151.14 after commission. That commission is their dynamic currency conversion in action and exactly what you’re trying to avoid. Nobody should need to pay more for a flight because of choosing one currency over another.
A 6.5% commission for them to perform a currency exchange is very expensive and a common practice if you let a merchant choose an exchange rate. If that percentage doesn’t seem like a lot then consider this: How much would you love a 6.5% raise…?
I ended up paying $141.89 for my Japanese domestic flight which is actually a savings just over 6.5%.
Paying in yen told Chase that I wanted them to use their best rate possible, and sure enough, that worked out in my favor. A tiny bit better exchange rate was given by Chase on top of avoiding the airline’s commission.
A great example of taking advantage of exchange rates can be found at the beautiful International Peace Garden straddling the border between North Dakota and Manitoba. All prices are listed in dollars, but the garden accepts USD or Canadian dollars (CAD) to pay the same number amount shown. In other words, say entry costs $10. I can pay that $10 in USD, but I should pay $10 in CAD because that gets Americans a slight discount thanks to the exchange rate.
When traveling for over a year like us these little improvements make an enormous difference. These situations aren’t limited to airlines or major purchases abroad. Paying in dollars at a restaurant or bar will let that establishment choose to charge an extra commission on top of your bill. It has never been more expensive to pay in the local currency instead of paying in dollars while traveling abroad. Pay in the local currency, save money, travel longer.
