Friday, January 12, 2007

Peso Bailout

A chain of pizza restaurants that caters to Hispanics has recently begun accepting Mexican pesos as payment. The predictable demagoguery and hatemongering by the anti-immigrant people ensued. Here are a couple of reasons why the people whining about this are off their rockers:

- Most countries - including our own - have many businesses that accept alternative currencies. Most of the time this occurs in border areas (like the parking lot in Buffalo I once used that advertised parking for $7/$10 Canadian). However, in areas where there is a significant recent immigrant or foreign visitor population, it's smart business to accept foreign currencies as well. My dollar has been good in Matamoros, the Yucatan Peninsula, and Nepal - which, last time I checked, is located nowhere near the U.S. I have a feeling there are a lot more places that will accept the dollar. And as I mentioned earlier, businesses in towns along the Canadian and Mexican border will accept the currency of their respective countries - the article mentions Wal-Mart as being a peso acceptor.

- Getting money changed is costly. Recent immigrants and visitors who have 500 pesos lying around would be paying commission through the nose to get that changed to $50. They'd probably end up with more like $40. So what's the solution? Give the pesos to a business that can lump a bunch of peso sales together and have the business change that money all at once. Since the pizza joint does a lot of business with Hispanics, they'll have a lot of peso sales. Often they can deposit pesos directly and have it credited as dollars by their bank (it works with withdrawals - I could take pesos out of an ATM in Mexico without having to pay commission). And it helps the customer who doesn't have to pay money-changing commission. Everyone benefits. Furthermore, acting as a money changer aids the process of assimilation by making it less costly to replace the pesos immigrants have lying around with dollars (which is what they're getting paid in).

You're not affected - you'll still be able to pay in dollars, since it is the national currency and all. It'd be pretty stupid business practice to stop accepting the official currency of the country you're doing business in. Imagine if I went into business in Mexico and started accepting only dollars.

The only forseeable problem for the business is the exchange rate flexibility. If the peso suddenly rises against the dollar, they'll have to change their peso prices post-haste or else their customers will get hosed. Similarly, if the peso falls against the dollar, they'll have to adapt to that or else they'll get hosed.

- As the spokesman in the article points out, it's good business practice. The first rule of business is to know your customer. The customer of a pizza joint that caters to Hispanics probably would find it convenient every now and then to pay in pesos. In fact, by being the first to accept pesos in places such as Dallas, Denver, and Phoenix, they'll get a lot of business from people who don't really have anything else to do with those damn pesos (see the end of the article).

OK, people, stop whining and get back to doing whatever it is that you've been doing.


Michael said...

Very good points. Like you, I think it's stupid to whine about this; it really is a no-lose situation.

I used to live in the Detroit area, where most places will accept Canadian coins (nickles, dimes, quarters) in small amounts. I'm in Israel now, and while most places here require payment in Israeli shekels, there are no-commission currency changers all over the place.

On a side note, I know exactly where you're coming from on this: I did once pay a cab fare in dollars, when I was short of shekels. The driver and I both knew the exchange rate, and I got correct change in shekels.

So what's the peso problem, other than plain-old bigotry?

Ben said...

If you believe the country is slowly, insidiously being taken over by Mexico, this is proof of your beliefs.

Of course, if you believe the country is slowly, insidiously being taken over by Mexico, you should go into your backyard and hit yourself on the head with a hammer. Or at least a rubber mallet. I'm not picky.

Jeff said...

If you don't have a hammer, press 4. If you don't have a backyard, press 5. If you don't have a head, press 6.