The Cash or Credit Card Conundrum in Oaxaca

Screen Shot 2017-06-26 at 7.45.00 PMBy Alvin Starkman, M.A., J.D.

Earlier this year a federally licensed driver recounted a story about a couple vacationing in Oaxaca from Australia, and wanting to enlist his chauffeur services for the following day. All was arranged until the Aussies asked, “Can we pay at the end of the day with VISA?” He replied that he was not equipped for credit cards, but certainly cash in USD or pesos would be fine, or even paypal. They had no cash, and stated that they could not access paypal or an ATM with the card(s) they had. Imagine!

We all know that travellers cheques are essentially a thing of the past. And at least here in Oaxaca, so is the premium previously placed on purchasing with US dollars. But most significantly, credit card usage is going the way of the Dodo. Here’s why.

Certainly the larger hotels, airlines, car rental companies and restaurants readily accept credit cards, and do not charge a premium for their use. As well, they still remain a valuable means by which to confirm a reservation. But for day-to-day purchases while in Oaxaca, credit cards are a less than desirable means of transacting business, as are US dollars.

Many small craft workshops in the villages simply do not have credit card capability, even some of those with the most exquisite, high quality work. And where credit cards are indeed accepted, sometimes there is not a strong enough phone or Internet signal enabling the shopkeepers to process the purchase. If there is, often you will be asked to pay the retailer’s fee paid to the credit card company, sometimes 5 – 6%. While I don’t think that in most first world countries it’s permitted, certainly in Oaxaca often retailers provide a 10 – 15% discount for cash. It’s noteworthy that on almost all goods and services that are recorded, a 16% value-added tax (IVA) applies.

Negotiating price is still possible in Oaxaca, but certainly not nearly to the extent it was in the 60s, 70s and 80s. Competition is fierce, and the vagaries of tourism in the state of Oaxaca dictate that retailers start with competitive prices … at least in most cases, where reputable vendors are not interested in seeing if they can “hook a live one.” Of course, it still exists, but not like before. The implication is that on balance you are beginning with ticket prices which translate to basically actual market value of the item. The only way to induce a lower price is buying in quantity, with cash, and it should be in pesos. Even buying by the dozen does not provide an assurance of a significantly lower price, because profit margins are simply not the same as they are in the US or Canada. Often I pay the same per liter price for 20 liters of a particular mezcal as I do for one. Or at best there is perhaps a 5% discount.

By why not US dollars? Until the early years of this century, US cash was still king. Either it was being saved up for a pending visit to the US, or those in urban centers were taking it to banks and exchange houses to convert to pesos.

Then the Mexican government, in an apparent attempt to curtail money laundering and the cash economy in general, began implementing a series of rules and regulations requiring ID when exchanging and reporting to government. Many banks simply ceased money exchange operations, and those that continued placed low monthly maximums on the amount of US dollars that could be exchanged. Most recently here in Oaxaca, the one bank that used to be a reliable exchange avenue began adopting a rule that without an account at one of its branches, no exchange.

For many in rural areas, including craft villages and artisanal mezcal distilleries, it became a pain taking US dollars to larger urban centers, unless, of course, it was worth one’s while by offering foreign customers a much less attractive rate of exchange than they or anyone else could get in the city’s banks and exchange houses.

The final straw came on November 8, 2017, with the election of President Trump. Those who had traditionally relished the opportunity to receive and hoard US dollars, anticipating a visit to the US sooner or later, began to think a bit differently, not because of any specific animosity towards the American public, but rather assumptions that:

  1. It would be more difficult than previously to obtain a US visa.
  2. Even if a visa were secured, the likelihood of being turned away at the port of entry would increase.
  3. Whatever anti-Mexican sentiment and bigotry there existed in the US somehow became legitimized. Mexicans are less inclined than previously to spend their money in the US.

So US currency has lost its shine. Credit cards have their downfalls. That leaves us with Paypal, which is gradually catching on throughout the state, and ATMs. Bring your cards that enable withdrawals at Mexican ATMs. Notify your home bank before your visit, and consider increasing your maximum withdrawal amount and number of times per week you can access your cash. Bring at least two cards, since although it happens rarely, ATMs have been known to eat and not regurgitate debit and credit cards. Consider opening an account at your home bank that, in exchange for maintaining a modest minimum monthly balance, does not charge a fee for ATM withdrawals from foreign banks. Oaxacan banks charge as little as 30.74 pesos per withdrawal, a bargain as long as you remember to withdraw the occasional larger sum rather than frequently small amounts.

Yes, not using your credit card means no points, but remember that the amount you’ll be spending here in Oaxaca in the end won’t mean a tinker’s dam.

Alvin Starkman operates Mezcal Educational Excursions of Oaxaca

www.mezcaleducationaltours.com

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