You are standing at a till in Macau with a Hong Kong dollar note, or in Cancun with twenties, or in Grenada with US dollars, and the shop says yes, that is fine. It is fine, in the sense that they will take it. Whether it costs you anything depends on the ratio they use, and almost nobody checks.
This article sorts two-currency places into three kinds: those where the second currency is exactly equivalent, those where a peg has been rounded in the shop's favour, and those where the merchant simply chooses a rate. It then covers the change you get back, the card version of the same question, and a ten-second rule for deciding at the counter.
1. The Three Kinds of Two-Currency Shop
All over the world, shops, taxis and restaurants accept a second currency alongside their own. Sometimes that costs you nothing. Sometimes it costs a few percent. Occasionally it costs more than any ATM fee you have ever paid. The difference comes down to which of three situations you are in.
A legal peg honoured exactly. Some currencies are fixed by law to another at a round ratio, and shops use that ratio. The Belize dollar is two to one against the US dollar, the Bahamian dollar one to one, and the Brunei and Singapore dollars are interchangeable at par in both countries. Paying in the second currency costs you nothing at all.
A peg that has been rounded. Some currencies are pegged at an awkward ratio, and shops round it to a simple one, always in their own favour. That rounding is a small, invisible fee on everything you buy.
A rate the merchant makes up. Where there is no peg, a shop that accepts a foreign currency simply chooses its own exchange rate. It is rarely generous, it varies from till to till, and it is where the real money goes.
2. The Rounded Pegs: Small Fees Nobody Mentions
Macau and the Hong Kong dollar. The pataca is pegged at about MOP 103 to HK$100. Hong Kong dollars are accepted everywhere in Macau, usually one for one, so each payment in HK$ costs you roughly 3 percent. And your change comes back in patacas, which are not accepted in Hong Kong. Our Macau money guide explains when it is worth taking patacas instead.
Bosnia and the euro. The Bosnian convertible mark is fixed at 1.95583 marks to the euro. Many businesses accept euros and round the rate to two marks, which works in your favour, while others round down or give change in marks at a less friendly rate. Check the ratio being used before assuming it is fair; the Bosnia guide has the detail.
The Eastern Caribbean dollar. Grenada, St Lucia, Dominica and their neighbours use a currency pegged at 2.70 to the US dollar. US dollars are widely accepted, but many shops and taxis count them at 2.50 or 2.60 rather than 2.70, a discount of several percent on every purchase paid in dollars. The Grenada money guide covers the islands' practice.
Namibia and the rand. The Namibian dollar is pegged one to one with the South African rand, and rand notes and coins are legal tender in Namibia. Here the ratio is exact, so paying in rand costs nothing, but Namibian dollars are not accepted in South Africa. Spend them before you cross. The Namibia guide explains the arrangement.
3. The Merchant's Own Rate: Where It Gets Expensive
Mexico's resort dollars. In Cancun, Los Cabos and Puerto Vallarta, restaurants, tour desks and taxis quote and accept US dollars. The rate they use is their own, commonly 10 to 15 percent worse than the real one, and change comes back in pesos. It is the single most expensive habit on a Mexican beach holiday, and the Mexico money guide explains why pesos win every time.
Costa Rica's dual pricing. Prices for tours, hotels and many restaurants in Costa Rica's tourist areas are quoted in dollars, and dollars are accepted almost everywhere. Paying a colón-priced bill in dollars, or a dollar-priced one in colones, means accepting the business's conversion, which can differ noticeably from the bank rate. Pay in whichever currency the price is written in. The Costa Rica guide covers when each is used.
Cambodia's dollar economy. Cambodia is the rare case where the foreign currency is the main one. Prices across the country are in US dollars, ATMs dispense dollars, and the riel is used as small change, at a rate close to 4,000 riel to the dollar. That is broadly fair. The catch is that worn or torn dollar notes are often refused, and riel change cannot be used outside the country. Our Cambodia money guide covers the quirks.
Border towns and airports. Anywhere near a border, from Canadian towns accepting US dollars to shops in European airports accepting pounds, a second currency is usually accepted at a rate that protects the shop. Assume the rate is poor unless it is written down and you have checked it.
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4. The Change Problem
Change almost always comes back in the local currency. Hand over a foreign note and you will be given the balance in the shop's own money, at the shop's rate a second time. A HK$100 note in Macau returns patacas. A US$20 note in Cancun returns pesos. A dollar note in Phnom Penh returns riel.
That creates leftovers. Change in a currency you did not plan to hold accumulates, and some of it cannot be spent anywhere else: patacas outside Macau, Namibian dollars outside Namibia, riel outside Cambodia. Coins in particular are almost impossible to exchange once you leave.
How to handle it. Carry small denominations of whichever currency you use, so change is small. Spend local-currency change first, and pay the last bills of the trip with it. Our guide to leftover foreign currency covers what to do with what remains.
5. A Card Is Not Immune: The Terminal Asks Too
The card version of the same question is dynamic currency conversion. When a terminal abroad asks whether to charge you in your home currency or the local one, it is offering exactly what a shop does when it quotes you in dollars: its own exchange rate in place of the real one. Accepting typically costs 3 to 8 percent.
The answer is the same as with cash. Choose the local currency, and let your card network convert at its own rate. In a place with two currencies, choose the one the price is actually set in. Our DCC explainer shows how to spot the prompt, including the ones designed to be accepted by mistake.
6. How to Decide in Ten Seconds
Before the trip, look up two numbers: the official rate between the two currencies, and whether it is a legal peg. The guide to pegged currencies lists the common ones.
At the till, ask one question: what ratio is the shop using? If it matches an exact peg, pay in whichever you have. If it is a rounded peg, pay in the local currency where you can. If the shop is setting its own rate, pay in the local currency, or by card in the local currency.
And pay in the currency on the price tag. A price written in pesos is cheapest in pesos; a price written in dollars is cheapest in dollars. Converting it at the till, in either direction, only ever adds a rate somebody else chose.
Frequently Asked Questions
Is it cheaper to pay in local currency or US dollars abroad?
Almost always in local currency, unless the two are fixed at an exact legal peg that the shop honours, as in Belize, the Bahamas or Panama. Where a shop sets its own dollar rate, as in Mexican resort towns, paying in dollars commonly costs 10 to 15 percent more, and your change still comes back in the local currency.
Why do shops give change in a different currency?
Because they hold their own currency in the till. If you pay in a foreign note, the balance is returned in local money, converted at the shop's rate a second time. That is how travellers end up with patacas in Macau, pesos in Cancun or riel in Cambodia that are hard to use or exchange elsewhere.
Does paying in Hong Kong dollars in Macau cost more?
Slightly. Macau's pataca is pegged at about 103 patacas to 100 Hong Kong dollars, but shops usually accept Hong Kong dollars one for one, so each payment costs roughly 3 percent, and change is given in patacas. It is a small cost on a day trip and worth avoiding over a longer stay.
Can I use euros in Bosnia?
Often, yes. The Bosnian convertible mark is pegged at 1.95583 to the euro, and many businesses accept euros, usually rounding the rate to two marks. Some round less kindly or give change in marks. Check the ratio being used, and carry marks for smaller purchases.
Is it a good idea to pay in US dollars in the Caribbean?
In the Eastern Caribbean dollar islands it costs you a little: the currency is pegged at 2.70 to the US dollar, but many shops and taxis count dollars at 2.50 or 2.60. In islands where the US dollar is the official currency, or pegged one to one and honoured exactly, it costs nothing. Check which kind of island you are on.
Should I accept a card terminal's offer to charge me in dollars?
No. That is dynamic currency conversion, the card version of a shop choosing its own exchange rate, and it typically costs 3 to 8 percent. Choose the local currency, or whichever currency the price is written in, and let your card network convert it.
The Bottom Line
A shop taking your second currency is doing you a favour in convenience and, often, itself a favour in exchange rate. Where the second currency is fixed by law and the ratio is honoured, it is genuinely free. Where the peg has been rounded, it is a few percent you did not notice. Where the shop sets the rate, it can be the most expensive payment of your trip.
The habits that avoid all three are short. Know the official ratio before you go. Pay in the currency the price is written in. Carry small notes so your change is small. When a card terminal asks, choose the local currency. And spend the odd currency you collect before you leave, because nobody at home wants it.
For the destinations above, start with the Macau, Mexico and Cambodia money guides. For the currencies that are fixed to another and why that makes timing your exchange pointless, see the currencies that barely move.
Hero photo: a 2007 one-pataca coin from Macau, by J. Patrick Fischer, CC BY-SA 3.0, via Wikimedia Commons.