Making a drachma out of a crisis

Making a drachma out of a crisis

Imagine the conversation: “I am going to a Greek island this summer – Crete or Santorini or Rhodes.” “You might need to take drachmas.”

Markets are on red alert about the finances of Greece, so holiday planning involves the contemplations of a currency trader.

Tourists would not really need the new drachma though, as no Greek would refuse the ‘hard currency’ euro. And there is no need to worry about the exchange rate. If anything, your readies in euros will be worth more when spending there.

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During the 2008 financial crisis, when the pound lost its value against most currencies, the Brits saw their holiday spending power reduced dramatically.

This year, however, British holidaymakers are to travel the continent, to take advantage of the weak euro. A pound is now worth around 1.4 euro, having gained ground against the euro steadily over the past five years, from a low of €1.02 near-parity at the end of 2008.

You can even consider a tragicomic romp across Europe in the steps of Michael Lewis, the writer who visited Iceland, Ireland and Greece as a financial disaster tourist.

Those who want to lock in the current favourable pound to euro rate could buy their holiday euros in advance at home, although exchanging the pound at a local booth at your destination or simply getting it from a cash machine once you got there incurs lower fees than those charged on the UK high streets.

Credit or debit cards charge the exchange rates of the day when the card is actually used for purchase. Travellers can fix the FX rate by loading up a prepaid travel card with their holiday money now and use it later in the summer.

Trying to outsmart the currency market for a one or two thousand-euro holiday budget might only earn the price of one extra dinner, but when you are moving large sums, it can make a difference.

If you can secure just one eurocent more for each of your 100,000 pounds when buying a holiday home in sunny Italy, for example, you would have a thousand more euros to spend on your property.

Timing is crucial. Would-be buyers of European property keep asking the question: has the euro now reached the bottom against the pound? Is this the time to buy?

The financial crisis shook faith in the banking system, then the FX rate-rigging scandal pointed at the flawed currency exchange business of banks. It made a growing number of customers look for alternative options when converting money.

Expat bankers in London, however, are not using their very own high street banks when converting their bonuses, pulling in their funds from abroad or regrouping them between currencies, even if the money could move conveniently straight from their bank accounts to overseas. They use foreign exchange brokers, whose exchange rates are more competitive than that of banks.