Always use the currency of the country you’re visiting.
You will get a better exchange rate and you look less like a short term tourist, which can benefit you when negotiating for items, visiting restaurants, etc. If you’re thinking it’s just pennies, consider this example. The Mexican peso is currently trading at about 12.5 to the dollar, but if you pay in US dollars in Mexico the best rate you’re getting is 10 to 1. An item that costs 500 pesos will cost you the equivalent of $41.50 if you pay in pesos or $50 if you pay in dollars. Multiply this for more expensive items or meals and you see how easy it is to spend more money for no reason.
Even if you’re stuck with some money at the end of the trip, you can use it to tip the housekeeper, buy food or snacks at the airport, donate small change in those airport kiosks or save it for a future trip.
In beach areas of Mexico that attract large numbers of annual US visitors, the dollar used to be more commonly used. Last year the government instituted new policies. I still bring $1s for emergency tips for when I have no change in pesos, but suggest it’s best to adapt and use the local currency.
Oanda.com is a great site for up to date information on what your money is worth anywhere in the world. You can print a business-card sized traveler’s cheat sheet – and a reverse cheat sheet, so you know what you’re spending. They also have a great mobile app.
I rarely get currency in advance. Since the advent of the ATM, I’ve only had trouble getting cash twice overseas. Exchange bureaus and most banks in the country where you live will not give you a favorable rate for overseas currencies. As a back up measure, I bring about $300-500 in US dollars in my money belt, depending on the length of stay and how hard it may be to get money at the destination. In a rare event I can’t access cash through an ATM I can always exchange money in a bank, an airport exchange bureau or as a last resort – the hotel upon arrival.
When your travels take you to some developing nations, its worth checking on the country specific forum of Tripadvisor for any warnings about using ATM cards there. Not too long ago, Belize ATMs only accepted cards from Belizean banks, so check before assuming your card will work.
Your ATM card is one of your most valuable possessions when you travel. Avoid carrying the card with you, unless there is no where to secure it at your hotel. When its time to get cash, I go to an ATM machine near the hotel, and return the card to the safe as soon as possible.
When you call your bank to give them your travel dates prior to your trip, ask if they have a relationship with any banks at your destination. Often there are no fees associated with using that machine, but you will still receive a 1-3% currency exchange fee from your bank.
It’s also a good idea to make sure you have a phone number for your bank and credit card companies that you can call from overseas. I enter them in my Blackberry and have a list of the lost/stolen direct phone numbers for all of the credit cards I typically take overseas that I keep in the back of my Moleskin notebook, or my money belt in the room safe.
The best credit cards I’ve found for making purchases overseas are from Capitol One. Not only don’t they charge an exchange fee, but they give you the bank rate. When Bank of America sent me a letter stating that they would institute a 3% fee for overseas charges billed in US dollars, I cut up the card and signed up with Capitol One.