The Mexican Peso
Mexico's currency is the "Peso." It comes in coin denominations of 5 cents, 10 cents, 20 cents, 50 cents, 1 peso, 2 pesos, 5 pesos, 10 pesos, and 20 pesos. Except for the half-peso coin, the "cents" denominations are rare. Folding money comes in $20, $50, $100, $200, $500 and $1,000.
Peso means "weight" in English. It's not hard to see that the peso got its name from the weight of the metal that made up the coin. The Mexican Peso was inspired by colonial Spanish silver bullion, which was cast into coins worth "ocho reales," and became known as "pieces of eight." They were the obsession of the pirates of the day, and the model on which the US silver dollar was based.
As in the the US, Mexico uses the "$" to proceed the peso. Canada uses "C$." This can lead to some confusion over price, particularly because in Acapulco sometimes prices are quoted in US dollars. The recognized code for the Mexican Peso is "MXN."
The $20 and $50 peso notes are indispensable. It is often difficult for stores, taxi cabs and buses to change a $200 peso note, and changing a $500 bill is often impossible. It is also useful to keep a lot of coins in smaller peso denominations: 1, 2, 5 and 10. These work well on the buses, and are important when it comes time to put together a tip.
Be aware that the $500 peso note and the $50 peso note are both of a reddish color and can be confused, especially in the older version of the bills. The $20 (light blue) and $200 (light green) sometimes are confused as well. The smaller denomination bills are of a different size than the larger ones ($100 and up).
The value of the Mexican Peso has been remarkably steady for several years. With Mexico's participation in the North American Free Trade Areas (NAFTA) and its ever-closer relationship to the US economy and currency, Mexico has avoided the unstable fluctuations of the more distant past. The peso weakened somewhat in 2007 with a drop in remittances from abroad, a drop in oil exports, and more capital outflows by Mexico's very rich. It remains at about 12 to the dollar as of 2010, as compared with 10 to the dollar seven years earlier.
By 1993, the Mexican economy had been struggling with high domestic inflation for several years. One adjustment measure was to create a new currency called the "Nuevo Peso," which was worth 1000 of the old pesos. By 1996, the "Nuevo" was dropped. The currency collapse of 1993 was no small matter, as there were fears that it could spread to other counties and to the global economy. This was nicknamed "the Tequila effect." A loan of $20 billion from the United States, though controversial at the time, proved to be effective to keep the Tequila Effect from causing hangovers in Mexico and in the rest of the world.
Exchanging money in Acapulco is simple. Go to any bank or money exchange. Shop around for rates. Each establishment sets them as it pleases. Some banks are chronically more stingy than others. Some of the little exchange houses in the Golden Zone offer good rates, but not all of them do, so shop around. Exchange houses are hard to miss, with their flags blazing and the word "Currency Exchange" plastered all over the front. In Spanish, they're known as "casas de cambio." In Spanish the exchange rate is called the "tipo de cambio" and "divisas" is the word used for foreign currency or its exchange.
There are two different exchange rates for each currency pair: one at which the bank or exchange house sells pesos to you (i.e., they are buying your dollars or whatever; you are "going into" pesos), and a rate at which they buy your pesos from you, paying with US dollars or other currency of your choice (i.e., you are "going out of" pesos, "into" foreign currency). The terms "buy" and "sell" can be confusing because every exchange transaction is simultaneously a sale of money by one party and a purchase of money by the other. To keep this straight, look at the quoted rate: if it is something like $12.50, it means the value, in pesos, of a dollar. The "sale" price quote ("venta") means the number of pesos they will sell you in exchange for a dollar. The "buy" price quote ("compra") means that they purchase the pesos from you, and pay you in dollars. But instead of giving you the dollar price of a peso (which would be $0.08 USD at 12.5 to the dollar), they quote the peso value of the dollar they give you. This makes it much easier to compare the two rates and the "spread" between them. The peso-dollar "sell" rate is always lower than the "buy" rate. The spread is usually in the range of 50 to 80 cents of a peso. Thus, at a bank you might see: "Venta $12.50 / Compra $13.20."
An example will help to clarify: Suppose you have $100 USD and the peso-dollar rate is 12.50 pesos to the dollar. Using their "sell" rate, the bank or exchange will give you $1,250 MXN for your $100 USD. At the end of your trip, suppose you have the same amount left over, $1,250 pesos, and want to convert back to dollars as you leave the country. Also suppose that the exchange rates have not fluctuated since you first bought your pesos. The peso-dollar price used for this second transaction is not the $12.50 "sell rate", but rather the "buy rate," which we can suppose is $13.20. So the same number of pesos that they sold you for $100 USD will now net you only $94.70 in the reverse transaction. The $5.30 that you did not receive back is what the exchange house or bank will put in its own pocket. If the turnaround time on the money was a week, the "house" makes 5.3% a week on its money, or a whopping 1366% per year (assuming all their money goes to work all the time). The exchange houses often boast that they "charge no commission" on their transactions. They do not need to, since they are brokers, buying at one price and selling at another.
Why should you use your credit card whenever possible? You can get the best possible exchange rate if your bank just passes the charges through without piling on extra fees. When you make a peso charge on your dollar-denominated credit card, the Mexican intermediary bank pays your peso obligation to the vendor. Then it bills your bank for that charge, in dollars, through the electronic bank card clearing system. The Mexican intermediary bank must convert the amount of the payment by "going out of pesos into dollars." That implies the higher of the two exchange rates, the "buy" rate. If your bank does not impose extra fees or keep the exchange variation for itself, then you will be receiving, in effect, the dollar purchase rate, the higher one, for the charges in pesos on your credit card. In the example above, you will have spent, say, $1,250 MXN, which is $100 USD worth of pesos (using the "sell" rate). But the charge will appear on you statement as $94.70. The person who pockets the difference between the two rates is you, not the exchange house or bank, (assuming, as always, that your bank is one of the ones that allow the customer to keep the exchange earnings without taking it for itself).
Exchange rates fluctuate. Usually the fluctuation is not drastic over the period of an average vacation, but it can be. Typically, during tourist seasons, the peso strengthens a little, as more dollars come into the market, with the result that the value of the dollar in peso terms slips a little. During off season, the reverse takes place as dollars gradually become relatively more scarce. Lots of other factors affect the rates. Two days after pay day in the US, dollars flow in via wire to local families, who make long lines at the bank to receive their cash. This causes the peso to strengthen ever so slightly. When there is a financial crisis and the rich and powerful flee the peso for the dollar, the peso weakens, as more pesos are chasing fewer dollars in the markets. Knowing if there is a pressure up or down is useful. In a strengthening peso market, it is best to convert early out of dollars. In a weakening peso market, it is best to convert as late as possible. Cash conversions are early: You do the conversion before you spend. Credit card conversions are late: the rate is set when the card clears, which can be some time after the expenditure was made.