I have a couple of questions about the notion of "cash advance" on credit cards.
How does the credit company decide if some transaction is a "cash advance"? Does the merchant tell the credit company it's "cash" or does it depend on the type of the merchant (e.g. anything I buy from certain merchant is considered "cash")? For example, if I buy a foreign currency from some merchant, would it be "cash" (even though I can't use that currency to buy stuff until I go to a country where it is valid)? What if it's a collector's item (but also a circulating currency in some country)? i.e., who decides that and by which rules?
Why do credit companies charge high fees on "cash advances"? i.e., why do they care how I used the balance – if I directly exchanged it for an item or took cash and then bought an item? I understand it may be the loss of the transaction fees in the second case but the fees they charge and the interest they charge are much higher than any transaction fees. Is it just the case of charging extraordinary fees to discourage certain behavior?