Travel Tips

Traveling When Currencies Crash: Silver Lining of a Global Economic Meltdown

Locations in this article:  Paris, France

money in handAs the American bailout gets underway, Europe stands on the precipice and the world holds its collective breath, it may not seem like the most auspicious time to head out on a long vacation.

But the economic crisis may actually provide an opportunity for travelers to get some great deals.

Certain countries like Iceland, Hungary and Brazil have seen their currencies battered and, as a result, they’re now more affordable destinations for American (and Canadian and European and Japanese) travelers.

And, don’t think this is some sort of tour of misery—citizens of these countries may be even happier than usual to see you. After all, you’re paying in dollars …

ICELAND

Thanks to its bloated, overextended banks (which need to finance debt worth about 12 times the island nation’s entire GDP), Iceland is in desperate need of a bailout it’s just not big enough to provide. The International Herald-Tribune declared the country “all but officially bankrupt.”

The currency, the krona, has crashed, falling by more than half in a matter of days, despite the government’s attempt to peg the krona’s value to the euro. The Icelandic government wanted a peg of 131 krona per euro but international currency markets saw trades more along the lines of 280 to 330 krona, according to the Wall Street Journal.

ReykjavikWhat does that mean for travelers? Well, a standard brunch at Reyjavik’s cute Cafe Paris, costs 1,300 kronur. At the place the government was hoping to peg the currency, that would’ve cost you about $11.50. These days, that would cost you more like five bucks.

With the krona so low, Icelandic hotels, restaurants, and other travel services are a bargain. The Icelandic government may be pressing for a bailout from the International Monetary Fund, or IMF, which is probably better known for rescuing developing countries when they go belly-up. If (or when) they get one, the krona probably won’t be recovering quickly.

Check out our Off the Brochure Travel Guide: Reykjavik, Iceland.

HUNGARY

Though it’s a member of the European Union, Hungary does not use the euro. Its currency, the forint, is pegged to the euro, meaning that it is supposed to be stable relative to that currency. Unfortunately, economic mismanagement over the past decade has left the country in a relatively weak position to defend the currency from the vagaries of international finance.

Worse yet, according to OhMyNews, Hungary’s banks have made what are called “foreign currency” loans, which are denominated in another currency like the euro, but are paid back in forints. This means that many everyday Hungarians are vulnerable to currency swings.

For travelers, though, it means that the forint is probably headed downward past its recent two-year low with the euro and looks unlikely to make a significant recovery soon. This makes Hungary one of Europe’s better deals, especially compared to much of the euro-dominated continent.

For travel information on Hungary, check out NOT Paris in the Spring: Where Your Dollar Stretches Further.

SOUTH KOREA

South Korea’s currency, the won, has fallen to levels not seen since the aftermath of the 1997 Asian credit crisis when the entire region plunged into recession. While South Korean banks and companies haven’t been buying subprime loans, they are much more dependent on world markets and foreign cash than other local economic powerhouses like Japan and China.

Plus, South Korea has been cutting interest rates to try to boost its economy. Unfortunately, this actually undermines the won, meaning that it could be headed even lower in the coming weeks. So far, the country’s central bank hasn’t been spending much to defend the won, but if it drops much lower, it could have to dip into its reserves.

South Korea’s reserves (the sixth-biggest in the world), while much improved since 1997, still aren’t quite enough to cover the entirety of the country’s short-term debts. If the cash runs out, South Korea’s central bank would be forced to leave the won undefended. And that could potentially send it lower than it already is.

Links: Globe and Mail, BusinessWeek

christ the redeemer brazilBRAZIL

Brazil’s real has sunk by 18 percent in the past six days, although it has begun a modest rally, according to Bloomberg. That said, the real does not look quite as endangered as some other world currencies (see above). Brazil has big piles of foreign reserves that it can use to shore up its exchange rate.

But with Brazil’s currency looking strong long-term, its short-term prognosis is more mixed. In other words, the economic turmoil may be creating a short-term opportunity for a cheaper vacation.

Off the Brochure Travel Guide: Rio de Janiero, Brazil

By Matthew Calcara for PeterGreenberg.com.

Get more information on inexpensive adventures with these articles: