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I know that money exchanges work on the principle of selling foreign currency for more money than they are buying it. In an ideal market, there would be an equilibrium in the money being imported and exported (and there probably is one, actually), and the price would reflect the current supply and demand.

However, then the holiday season happens and people from the less attractive countries start visiting more attractive countries, creating an imbalance between cash exported and cash imported. Since it is still possible to exchange money during the holiday season for a reasonable price, I assume that large sums of money are somehow transferred back from the holiday countries.

I'm pretty sure it's not the handful of tourists who travel to, say, Latvia from Croatia.

How is physical money transferred back from these holiday destinations?

  • I think nowadays most tourist spending is either electronic or with cash the tourist has gotten from a local ATM. – Henning Makholm May 18 '18 at 14:13
  • That's possible, but my question does not depend on the total volume of transactions. – JohnEye May 18 '18 at 14:14
  • Even without exchange being involved, in a non-cashless economy people withdraw cash from ATMs or bank branches and eventually spend it in shops. How do cash then get back to the ATMs? The cash needs of exchange counters are not all that different, except that the distances are longer (which is one reason exchangers offer a wider rate spread than banks to on electronic transfers). Details are shrouded in secrecy in an attempt to frustrate would-be cash transport robbers. – Henning Makholm May 18 '18 at 14:24
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The same way any bank gets their cash, a big armored truck. Quite likely the same one.

The main branch of a bank generally gets their cash from the central bank of the country. They then send it to their branches to stock ATMs and cashier windows.

Cash exchanges work the same way. I assume that they get their cash from the central bank (which itself does currency exchanges with other countries).

  • As for the assumption at the end, I don't think central banks routinely deal with physical cash of other currencies than their own. (Some may keep a stockpile of foreign banknotes as part of their currency reserves, but that's not something they routinely trade with. Most foreign reserves are invested in securities that are themselves dematerialized). – Henning Makholm May 18 '18 at 15:58
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For the most part, it's not physical money. Tourists mostly spend electronic money, and the economy can easily absorb the effect of the small amounts of physical currency. Some of the currency doesn't ever make its way back to the original country. The US dollar is used in many countries as an alternative currency, and often is more stable than the local one. The US keeps printing dollars, and people in other countries keep taking them. A lot of the dollars do, however, eventually make their way back, as people in other countries buy stuff from the US. The people in other countries will either buy stuff directly with dollars, or exchange the dollars for local currency. Companies that import goods from the US will exchange local currency for dollars, and then give the dollars to US companies to pay for the goods they are importing.

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