#58 – The Expat Files: Navigating US Dollars and Local Currencies in Latin America

Automatically transcribed from the original recording; names and wording may contain errors.

[00:01] South of the border, down Mexico way That's where I fell in love When the stars above came out to play Hi everybody, I'm Johnny Mueller And you're listening to the Exped Files Living in Latin America The one of a kind show that tells you what it's like To live, work, play and or retire in Latin America So let's get started He was a picture in old Spanish lays Now let's talk about everybody's second favorite subject Money So what's everybody's first favorite subject then? Sex probably Anyway, down here in Latin America I'm finding, and every Exped's finding

[00:48] That it's getting harder and harder to convert And spend US dollars What I mean is, suppose you come down on vacation And you have a handful of US dollar denominations Like 5, 10s, 20s, 50s, whatever Now suppose you go into the local Wal-Mart down here And Wal-Marts, believe it or not, are everywhere In your local Wal-Mart And in almost all the transnational stores That have franchised down here Most every product has two prices on it The price in the local currency And the price in US dollars So you can pay with either one At least that's what you're supposed to be able to do If you have a dual price system like that And often for the tourists in the Exped That can be a very good thing Because when you go up to the checkout counter You can pay in the currency that gives you the best rate And believe me, those rates really fluctuate for the dollar

[01:34] Versus the local currency In fact, I've seen it fluctuate up to 10% From the best local conversion rate That they'll give you at the bank And believe it or not, it could be up to 10% in your favor Not theirs So Expeds, who almost always have US dollars on them Can take advantage of that third world laid back Manana attitude when it comes to them Checking the daily rate at the bank What I mean is that many of these retail businesses Don't adjust their currency conversion rates On a daily or even weekly basis And when you get a better deal by paying dollars That just means somebody dropped a ball in the accounting department Now, in the places that do accept dollars And that's most of the transnationals down here As opposed to all the mom and pop shops Who rarely take dollars because they just don't have enough tourists Or Exped clients to make it worth their while

[02:21] And just as an aside When you do go to a mom and pop shop Let's say a hardware store And let's say you're going to buy a sink Here's a little trick that can save you a lot of money Now, I said before that almost all the transnationals Will take US dollars But the mom and pop shops And the local businesses No matter how big they are Are pretty firm about accepting only the local currency But if you're going to buy a more expensive item Say that sink you want to buy Costs the equivalent of $95 in the local currency Well, even if you know they don't take dollars Mom and pop shops are running at such a small profit margin And they're competing against so many big outfits these days Well, the fact is they don't want to lose a sale like that Because a sink at $95 could be the biggest sale they've had all day So if you say, I only have dollars

[03:08] What's the exchange rate? There's a pretty good chance they're going to make an exception right there Just for you An agreeable smiling expat and take your dollars But they won't take US dollars for an inexpensive 2, 3, or 5 dollar item So don't try that Now the advantage for you the expat When you offer to buy that sink for $95 in US dollars Instead of the local currency Is that if they decide they really want the sale They'll look up that dollar to local currency conversion rate In the local morning paper Which is always laying around somewhere In any mom and pop shop Now the dollar conversion rate Is always printed on the front of the financial page In all the latin newspapers And the thing is That's the best rate possible for you It's always the bank to bank conversion rate

[03:53] And it's always a better rate on the dollar end Than the local banks give their own customers For example, let's say you're in Mexico And you go to a bank And you walk up to a cashier window And they give you 13 pesos to the dollar Now if you look at the financial pages In any one of the Mexican newspapers For that very same day It just might give the conversion rate at 13.2 pesos per dollar And that's the bank to bank rate Or the rate that the banks reserve only For their very best customers And I'm talking about big customers Like Nike or Microsoft or Volkswagen Or other companies with huge accounts That run a lot of money through their bank And that preferred rate in the paper Is not the rate that they give nobody's Like you and me Now the common mom and pop shop Are not used to people trying to pay with dollars

[04:40] The customers are local people And they don't have access to US money So the situation rarely comes up But when you're in their store trying to buy something big In order not to lose the sale They'll go into the back room And have a little discussion amongst themselves Which often ends up in your favor Because they know if you walk out of there And go to a bank And try to change your dollars into the local currency You might lose interest in the whole idea And never come back Or you might pop off to a competitor A big franchise outfit that does accept dollars In any case When you're trying to buy something for more than 50 bucks You should always ask if they accept dollars Even if you have plenty of the local currency on hand But don't let them know that And if they accept You'll probably make up better than if you're paid with their funny money

[05:26] And there's one more thing in your favor If you try to pay with dollars It's very obvious to everyone in that store That you're a first world gringo or a European And if you pull out your dollars or euros And by the way These same tricks work with euros Though for some reason Euros are better known with the locals in South America Than they are up north in Central America And remember this If you do have trouble changing euros Those small kiosk banks at the airports Will always change them for you Anyway If you, a first world expat guy or gal Tries to pay with a wad of US dollars or euros It looks absolutely natural to the salesman In the mom and pop store After all You're a foreigner So obviously you're going to have foreign money on you And because of that assumption They have a strong belief that that money is real

[06:13] And not counterfeit And besides getting robbed That's the retail business spends Biggest worry down here Counterfeiting money It's all over the place Though not so much with dollars Because hardly anybody takes them Though counterfeiting is a huge problem With their own local money In fact you'll notice a strange thing When you first come down here Every time you hand a cashier A large denomination note In the country's own currency that is And you should know that to these people Anything that's worth over 5 US dollars Is a large denomination note Which I guess it is Because for some people 5 bucks is a day's work down here Anyway when you hand a cashier a note like that They get this knee jerk reflex And hold it up to the light And look for a watermark and a mylar strip That's supposed to be embedded

[06:59] In every government issued bill And the counterfeit ones Though virtually indistinguishable From the real funny money Are printed on inkjet printers And don't have the watermark Or that mylar strip But anyway the point here is If you a gringle or a European Walk into one of these stores With US dollars or euros in your hand You're pretty much beyond suspicion That your money's counterfeit However if a Latin American guy were to walk in And he was shopping around With a watt of US dollars in his hand Now that would send up a red flag Because I'll tell you At nearly every mom and pop store I've ever been in You'll see behind the counter Or taped under the counter or to the wall A nice collection of counterfeit bills Bills they accepted and got stuck for When they went down to the bank

[07:45] And tried to make a deposit And surprisingly in those mom and pop shops You'll see various US bills Taped up there too Usually 50's or 100's So what that means is Nearly every mom and pop store Has been burned at one time or another With counterfeits of not only their local currency But with US dollars too So naturally they're gun shy Now just think about it for a minute If someone were to give you a 100 peso note Or even 5 British pounds Or 100 French francs You'd have no idea if those things were counterfeit or not And if someone came into your retail store And tried to buy something using that stuff You'd probably be hesitant to take it as payment Unless the guy was holding his own country's currency And even then you'd probably give him the once over It's just the same when US citizens

[08:30] Are holding their own dollars in their hands North Americans know exactly what a 20 dollar bill should look and feel like Well you'd hope so anyway But what do we know about Canadian money? Practically nothing right? So my advice is Always try to pay in dollars in a mom and pop store Because it could work in your favor And you've got nothing to lose But let's talk about these transnational companies Like Walmart and Ace Hardware and Sears That do supposedly accept US dollars And in some cases Actually have a dual pricing system Well like I said when I started today's show It's getting harder and harder to pass US dollars In fact more and more places are only accepting US 20 dollar bills now And believe it or not that includes a lot of banks

[09:15] And speaking of banks Lately I've seen some science posted at some of the checkout windows Listing some pretty tough restrictions On the amount of US dollars you can deposit and withdraw at one time Some of the tougher banks will only let you deposit 500 dollars at a time Or withdraw 500 dollars at a time And some others have a limit of 1000 or 2000 And almost all of them now have set limits on the amount of local currency You can change to dollars in one day And vice versa All kinds of rules have popped up So if you're in any kind of import or export business And you do a lot of dollar transactions This is not good news In fact I've heard so many complaints from people Especially expats That some of them are now moving their US dollar bank accounts

[10:01] To Caribbean tax havens Just to avoid the possibility That even tighter restrictions are coming down the pike And even worse A lot of expats are afraid there might be a repeat of the currency controls That happened in Argentina and Brazil During the hyperinflation years in the 90s Back then there was such a huge capital flight That the banks restricted US dollar withdrawals To about 100 bucks a month Now try to imagine living like that And expats living in Cuba and Venezuela know just what I'm talking about Because both countries have very tight US dollar currency restrictions Now some expats that I know quite well That don't live in Venezuela or Cuba Are already being slammed by these US dollar restrictions And I can tell you right now that the main reason That they're forcing these regs

[10:48] Is because of the narco traffic down here and money laundering And in fact it's the US that's been pressuring these countries to do it But all it really seems to be doing Is hurting the import export business Because you see the thing is The narco's are always a few steps ahead of government bureaucracies So once again it's a plan that's bound to fail One of the expats I know for example That's getting buried by this Buys late model wrecked cars in the US For US dollars of course Then has them shipped down to Honduras, Mexico, Guatemala and Salvador Where he has them completely torn down and rebuilt and restored For about a quarter of what it would have cost in the US Anyway he has to carry around wads of US dollars with him Because all these third world repair shops deal in cash And when they order replacement parts

[11:35] From the US on the internet or wherever They have to pay in US dollars US and international car parts companies Don't want Latin currencies They want to be paid in US dollars Come to think of it Every company I've ever dealt with on the internet Wants dollars too But my expat friend Can't walk around with 8 or 10 or 15 thousand dollars in his pocket He's got to keep that in a bank And withdraw the cash or write a check as he needs it So if a bank has restrictions That only allow him to withdraw 500 or 1000 or even 2000 US dollars at a time Then he's out of luck And he's not happy about it And another thing he says When he finally sells a finished car down here Down in Latin America For let's say 8 or 10 thousand dollars or whatever He always prefers his payment in US dollars

[12:21] Because when he goes back up to the US to buy more cars That's what he's got to use US dollars But he says lately Down here when he sells the cars More and more people are trying to pay him with the local currency The funny money from Guatemala and Nicaragua and Mexico And then he has to go down to the bank And convert that to dollars So he can do business up in the states However The banks will only exchange a few thousand dollars at a time And he loses a percent or two in the conversion rate From the local funny money to the dollar Not that the US dollar isn't the funny money of last resort itself But don't get me started on that So anyway you can see what kind of problems an expat could run into If he's running basically a US dollar business And always needs substantial amounts of cash on hand

[13:06] But let's get back to paying with US dollars At one of these places like Walmart Where they actually give you the option to pay in dollars or the local currency And in fact the price tag has both of the prices listed And if the merchandise itself doesn't have two prices on it When you get to the cash register There's always a sign that says they accept dollars And they give you the conversion rate And it's printed right on your receipt Now for as long as these transnationals have been around down here Some for 5, 10, even 15 years Paying in dollars used to be the easiest thing in the world to do And the worst that could happen would be that the cashier Would take your $20 bill or $50 bill or $100 or whatever And walk over to the manager's office Where they'd have a powwow for a minute or two And decide whether or not they were going to accept your dollars

[13:53] Based on the condition of your money And usually they'd reject your $20 or $50 or $100 bill or whatever If it happened to have a tear in it Or a piece of the corner missing And I can see the logic in that A foreign bank is not going to want to accept foreign currency That's all beat up and falling apart I mean a US bank probably wouldn't accept pesos like that either But in the last 6 months to a year Things have changed quite a bit and for the worst Suddenly the majority of these transnationals and banks Will accept nothing but $20 US bills And only $20 bills that are in very good condition So if your Andy Jackson has one magic marker streak on it Or a pencil mark or an ink stain Or even if they've been folded too many times in the center

[14:41] You're likely to get it rejected And by the way I'd like to know just who's been writing on all that money In my whole life I don't think I've ever done it I mean who's got the time to sit and doodle around Lincoln's nose Or Ben Franklin's specs I mean once I even got a $5 bill with an entire grocery list on the back of it I found money with phone numbers and addresses And tic-tac-toe games and SWAT stickers and slogans and stickmen Who's doing that anyway? Whoever it is you're screwing us up down here in Latin America folks So cut it out And for all you vacationers and travelers and expat wannabes out there I advise you to leave the 50s and the $100 bills at home The majority of places just won't accept them anymore Even if they're absolutely pristine And that's because according to a lot of bankers I've talked to down here

[15:29] 50s and 100s are the most frequently counterfeited US denominations And the most counterfeited by far? US $100 bills And where are they coming from? Well a lot of them are coming right off a good old inkjet printer Now that even a $50 printer gives absolute photo quality And the real sophisticated ones are coming out of the Middle East somewhere And the best ones of all, believe it or not, are coming from North Korea You know that little country that's run by that midget Oriental Elvis lookalike? But here's the catch If you go to a bank I mean your own bank down here where you have an account And let's say you had some money transferred from the US down to your Latin bank Now you can withdraw that money in dollars A bit at a time like I said And guess what? They'll try to give it to you in $50s and $100 bills

[16:15] And those are bills that almost no retail establishments will accept Including a lot of the banks themselves And that means it's quite possible that the bank you have an account in That's giving you $50s and $100 bills Will not accept US $50s or $100s If you came in and tried to deposit them in your account Talk about double standards What's up with that? And when I say to the bank teller that I only want 20s They always say they can only give me a few Because they need every last one of them for the ATM machines And I don't know about up in the US But down here, the ATM machines when you ask for dollars Only put out $20 bills And the maximum withdrawal from an ATM machine is $200 a day So you're in a cash 22 at a bank They try to give you $50s and $100s

[17:02] Which are getting more and more difficult to use down here And they won't give you 20s because they need them for the ATM machines Which brings up another point All the big trans nationals down here like Sears and Walmart and Office Depot Have ATM machines right in the store And always very, very close to the checkout registers Now here's another irony If you go to that ATM machine and withdraw let's say $200 In $20 bills of course And you decide to buy something in Sears for $200 And let's say you decided to pay it all in dollars Because they're giving a better rate in dollars than a local currency Anyway, I guarantee you that if you take that $200 That you just got out of the ATM machine And walk it over to the cashier

[17:47] And pay for that mattress or TV or DVD or whatever That cashier is going to reject some of that money Now I can't tell you how many times that's happened to me And they reject it for whatever reason A crease, a pan mark, a blotch Andy Jackson's face looks a little twisted Who knows? And I always say look I just got this money out of your ATM machine The one right over there The one right in front of your face And you won't accept that money According to you that money is no good Are you saying that the bank that your company is affiliated with That loads up that machine with money everyday right in front of your nose Is putting out dollars that are unacceptable Dollars that are in fact defective So let me get this straight

[18:33] The bank puts it in the machine and issues it to people So it's perfectly legal tender according to them But the cashier at the checkout counter says it's not Well you know you can never win an argument like that with these people Because they always blame their decision on someone else And down here in Latin America Logic is not one of their strong suits But that's not all Listen to this Lately when some of my expat friends and I have gotten together over a drink This very same subject just happened to come up And in fact one of my expat friends has decided this would make a good business Taking in undesirable $20 and $50 and $100 bills Bills that have been rejected that is For a discount rate of let's say 5% In other words you give him a $100 bill that's been rejected And he'll trade you that for 95 perfectly good dollars without a mark on him

[19:23] That every bank and transnational retail establishment will accept with a smile Because my expat friend who goes back and forth to the United States a lot Can take all those unacceptable bills that he's collected down here And go to any US bank and get brand new ones In fact in the US you can have ripped and torn and taped and died And faded and washed bills And banks have to accept them Go ahead and look it up on the internet If you have a US dollar denominated bill And it's been pretty much destroyed But you still have a little bit more than half of it left That is more than 50% intact You can take it to a bank and they have to give you a brand new one Anyway that's what I mean when I say that expats always seem to do well down here They take an oddball situation like that

[20:09] Where banks reject a lot of the money And some foreigner figures out a way to make a business out of it It's that good old Yankee know how I guess Now when it comes to money One of the most frustrating things for expats is this You could be standing in a checkout line and get your $20 bill rejected Because somebody wrote a number on Jackson's face Or maybe the bill is just a little too faded for the likes of the cashier Doesn't matter There's a thousand and one arbitrary ways for these guys to reject a bill But more frustrating than that is when the next guy in line Pays for his purchase with a shredded, smeared and faded and taped up piece of local currency That looks and smells like it was used for toilet paper And the cashier accepts it every time And speaking about the local funny money

[20:55] Not the US funny money now One thing I do have to admit It's awful pretty And it always comes in a variety of colors and different denominations Sometimes come in different sizes Or have a different texture to them And I always thought that was a great idea Because that way blind people could always very quickly tell them apart Why doesn't the US do that I wonder But after I lived down here in Latin America a while I realized that the different sizes and textures of money Couldn't have been purposely designed to help out blind people Because I can't think of anybody smart enough Or capable enough in government down here To have actually organized and promoted a great idea like that I mean it must have been an unintended consequence of something else Or just a lucky mistake Because things just don't work that way down here

[21:42] I mean remember Latin America is a place Where the police don't have enough gas to drive their cars Where they have helmet laws in the police don't wear helmets Where they have seat belt laws in the police don't wear seat belts Where people run red lights right in front of cops and nobody cares And you often see four people, a whole family Riding down the street on a 50cc motorcycle With a rusted dented tank of propane gas strapped to the back Like a human torpedo So I just can't believe someone designed the money to help out the blind That would be like asking Kim Kardashian to pilot the space shuttle And while I'm on the subject of local money And how it relates to the US dollar You should know that down here in Latin America The lowest denomination of paper money in some of these countries Is actually worth so little that it's not even worth carrying around in your wallet

[22:31] For example in Guatemala right now The lowest denomination of paper money is 50 centavos And though they don't actually print them anymore Because it costs more to print them than they're actually worth You still do get them in your change once in a while And in US dollars, one of those 50 centavo notes is worth about 6 US cents So if you happen to go into a bank and ask for $100 worth of these things They'll give you 1,666 of them Which is a stack of paper bills over a foot high Now just try to imagine that for a second And on top of that, they have a 1 centavo coin in circulation That's worth just a little more than a tenth of a US cent So if you were at a cup, both of your hands together And fill it to the brim with these 1 centavo coins

[23:18] You'd have the equivalent of less than 20 US cents in your hands So by now, I think you can see how ridiculous the whole monetary system is down here And basically, there's just a bunch of brain dead idiots in control Whose only claim to fame is that they're very good at stealing And because most of these countries have severe bouts with inflation every once in a while Like Argentina did in the 90s When they had a few very bad years of over 100% inflation In Brazil too in the 90s, they had over 1,000% inflation Which to a first world person is almost inconceivable And right now, Venezuela is running about 30% inflation a year So the thing is, expats might not be used to huge currency fluctuations at all Not in really short periods of time anyway Even though it's hard to imagine that the United States dollar

[24:06] Has lost 95% of its value in the last 100 years In other words, what you could buy for a nickel in 1913 cost you a dollar today Anyway, our creeping inflation in the first world Which has wiped out half the value of your dollar just in the last 5 years Is really very scary to a lot of folks up north But even 100% inflation over 5 years like we've had in the first world Is nothing new to Latin Americans The fact is, every Latin American country has its regular inflationary blow off It's more the rule than the exception down here And that's why I advise expats never to keep their money in the local currencies Although they should have a local bank account in a local currency They should never keep any substantial amounts of money there And that means don't buy any financial instruments

[24:53] Don't buy stocks or bonds or CDs or anything Because you'll always get beat up in the end The governments down here have no fiscal responsibility whatsoever And they think that if they stay a bit on par with the dollar Everything is going to be okay But they never stay on par with the dollar in the long run And nobody at all seems to understand That the US dollar has recently lost half of its value So any Latin currency that stayed on par with it Also lost half of its value Even though they act overjoyed when it stays even with the dollar But nobody's saying a thing about that And when you talk to bankers and economists and financial people down here They don't even talk about what's happening to the dollar That it's crashing All they care about is how their currency stacks up against it So for expats

[25:39] It looks like the only way to preserve your wealth down here Is to buy gold or silver or commodities Or land you can mine or cultivate So what good is it if the Mexican peso is 12 to 1 against the US dollar All that means is when the dollar takes its next big dive The peso is going to go right down the tubes with it Why isn't anybody down here talking about that? Well you could blame the universities down here For providing such a horribly incomplete education But it's even more complicated than that And I'll tell you this Every Latin person I know that has some kind of a college degree Even they think we're in a temporary economic crisis And that we're turning the corner and we're just about ready to come out of it Just like we always do Led of course by the United States

[26:25] None of them has the vaguest idea of how serious the financial crisis really is And none of them are buying gold and silver Or talking about buying farmland for mining or development They still think the stock market is the place to put your money And they have no idea that those huge government bailouts The bailouts that came from the Bush and Obama administrations Are what's artificially keeping Wall Street afloat So the question is what's going to happen down here in the next few years? Well I'll tell you this Anybody holding currencies or government bonds And I don't care if it's Argentina or Brazil or Chile Those places down here that everybody up north seems to think are having economic miracles Well they're wrong and in the next few years Their economies are going to get whipsawed right back into the toilet And it's nothing new for them

[27:11] It happened to them multiple times in the 90s And all you people up in the first world You weren't there to see it happen You had your creeping inflation But up north we've never had a thousand percent inflation Nor a hundred Nor fifty Or even thirty So all I can do is quote Bette Davis Who said, fasten your seatbelts We're in for a bumpy ride You've been listening to The Expat Files Living in Latin America And don't forget you can email me On anything at all about Latin America The Expat Files at gmail.com That's theexpatfiles at gmail.com See you next time Nos vemos