Foreign currency during travel

Everyone knows that you need foreign currency when you travel. The question is, where do you get your foreign currency from?

Most people I speak to get the currency of their destination from moneychangers, either in Singapore or at their destination. In other words, they carry rather large amounts of cash while travelling, and they change currency on the street.

I get my foreign (or rather local) currency after I reach my destination, from a local ATM on the PLUS or Cirrus network.

There are a number of advantages to doing so: convenience, safety (particularly in those autobanking lobbies), zero likelihood of a con-job, and an ability to better control how much cash I draw or will spend. I almost never have leftover currency after a trip, other than coins, which I consider souvenirs of my trip.

The biggest problem most people have with this method of getting local currency is that they worry about bank charges, and that they feel the rate is inferior to the street rate. More to the point, the rate is not transparent (you won't know until your next bank statement) and hence, most people are wary of drawing local currency from an ATM.

On the other hand, the pro-ATM argument states that since the rate at which local currency is drawn from an ATM is the interbank rate, the rate should in fact be superior to the street rate, and even after deducting fees and charges, should be broadly comparable to the street rate. [The interbank rate is the wholesale rate at which forex transactions between banks are carried out through the interbank networks. In theory, the bid-ask spread should be narrower than the street rate due to the sheer volume of transactions.]

I believe in the pro-ATM argument, but after hearing so many people claim to the contrary, I decided to look into this myself. In the past month, I've made two trips, one to Taiwan on business and one to Bali for a vacation. For both trips, I drew local currency from ATMs multiple times and I checked my bank statements after I returned to Singapore. I computed the effective rates and compared them against the street rates I saw while in Bali. I didn't see any moneychangers in Taiwan while there, but I checked the rates on XE.com before my trip. Rates on XE.com really are the best rates you can get, XE being a forex broker. So any rate close to the XE rate is a really good rate.

Here's what I found:

In all cases, I drew currency using a Citibank ATM card, which according to the customer service officer I spoke to in Singapore, levies no charges on foreign ATM withdrawals. However, I was warned that the foreign bank that owns the ATM may choose to levy charges. 

Well, I saw no extra charges on my bank statement, so if there were charges, they were probably built into the exchange rates.

In Taiwan:

I drew NTD7900 from a Chinatrust ATM at Kaohsiung airport, and my statement recorded a withdrawal of SGD360.97. So the effective rate was SGD1 = NTD21.89. Not bad considering the XE rate was about just north of NTD22 to SGD1 at the time of my trip.

[Why did I draw such a funny number like NTD7900? To get the small NTD100 notes, duh.]

Incidentally, I also charged my ABN AMRO Switch card twice while in Taiwan.
The effective rates for those two purchases were SGD1 = NTD21.95 and SGD1 = NTD21.85. Both rates are comparable to drawing cash from an ATM.

In Bali:

The street rates in Kuta ranged from SGD1 = IDR6600 to SGD1 = IDR6800.
I drew local currency four times, from ATMS belonging to three different banks:
The effective rates were:

BNI bank at the airport: SGD1 = RUP6235
BII bank in Kuta: SGD1 = RUP6637
Citibank at the airport (after immigration but before customs; the only Citi ATM I saw while in Bali):
SGD1 = RUP6656

ABN AMRO Switch card purchase
SGD1 = IDR6601

The street rates in Bali were better, particularly when compared against the rate I got at BNI bank, which was clearly a rip-off. The fact that the BNI ATM was at the airport could be a factor though. More fees perhaps. The street rates were slightly better, but not substantially so, than the rate I got from BII bank in Kuta itself, and also the rate I got from the Citibank ATM at the airport (remember I used a Citicard to draw money).

From the above data, it also appears that it's cheaper to pay cash for purchases than to charge purchases to a credit card.

While the street rates appear to be better, I still think I'll rely on ATMs when I'm in Bali. Money changer scams in Bali are egregious. Just google for it and the horror stories will pop up. A slightly inferior rate is worthwhile insurance against con-artists.

So what's the conclusion to all this? My hypothesis is that the ATM rates are probably really good when you're drawing money in a developed country (which squares with my own experience back when I was a backpacking student in Europe), but street rates are probably better in developing or third world countries. Bear in mind that third world countries exhibit some peculiarities that probably account for this. For example, I've travelled to Peru and people there *love* US dollars, even if the dollar is going to the dogs in today's weakening US economy. And changing a single USD100 note compared to USD100 in smaller bills gives a better rate in many Southeast Asian countries (e.g. Thailand). It's no wonder that the street rates tend to be better than ATM rates. Still, this is balanced against exposing yourself to scams while changing money on the street.