January 07, 2007

Now, If Only We Could Get Rid of Our Canadian Coins

A DALLAS-BASED CHAIN of pizza shops will on Monday start accepting Mexican pesos for cash payments, the Dallas Morning News has reported. The Pizza Patron chain, which the News said markets heavily to Latinos, figures the move will prove popular with its core market. There are, however, catches. First, the shops will only accept peso notes, as opposed to coins. Second, change will be given in U.S. currency. Third, and perhaps most notably, pesos will be accepted at a 12 to 1 ratio with the U.S. dollar; the present rate is about 11 to 1.

I'll be interested to see how this turns out, if only because the Pizza Patron chain has discovered a practical use for all those excess 20, 50 and 100 peso notes people bring across the border with them, but don't bother changing at the bank or the change bureau because it's not worth the hassle. Selling pesos far away from the Mexican border can be a frustrating experience. First you have to find a branch of your bank that will buy them; then the transaction can be a pain; and finally, the bank pays a miserly rate when it does buy. It's just not worth the trouble if you've got an extra 50 or 100 pesos in your wallet that for some reason you didn't spend in Mexico.

Of course, it is wise for the chain to only accept peso notes. Coins would prove heavy and impractical. Besides, no one would be fool enough to spend peso coins in an American pizza shop, as that would take even more coinage out of the already-strapped Mexican system. What's that? You don't believe me? OK, fine. Look at this list of Mexican coins. Notice how it refers to something called the "five centavo coin." Notice again how it refers to a coin allegedly in the amount of "twenty centavos." Readers, I can assure you that outside of Los Pinos or a museum, no one has seen one of those coins in years.

It is also wise for the chain to effectively buy the pesos at a discount (or, alternatively, sell pizza at a premium). Pizza Patron is effectively buying its pesos at 8.33 cents per peso when the real value is now about 9.09 cents; a profit of 0.75 cents per peso spent in its stores. Now, let's say on a typical day the chain takes in 100,000 pesos from its 59 stores (for an average of US$140 per day per store). That's a gross profit of $750 just on the currency transaction. Over a year's time, that's a gross profit of $273,000.

Now, the chain says it must buy at a lesser rate due to the expense of changing the pesos into dollars. That's fair enough, but I can't believe the firm doesn't realize some sort of profit anyway. Even at a change bureau, the premium charged tourists off the street is only 1.5 or 2 pc, not the roughly 8 pc gross profit Pizza Patron would realize. Even if its bank charged 4 pc, Pizza Patron would still do all right. But as I can't believe the firm's bank would go out of its way to upset a good customer, a customer which would very much like this idea to work, I must believe Pizza Patron has found a way to get a good rate for its exchange.

So this seems like a very clever idea that, if it all works out, could very well please both the chain's customers and its accountants. That's a rare thing indeed!

As an aside, I have to say it would be great if more places in the north would accept Canadian currency in payment for goods and services. As a Michigander, I grew up under the assumption that Canadian money, although a bit weird and not as cool as U.S. money, was still perfectly viable for use in commerce. Furthermore, Canadian coins were often accepted at par with the God-fearing coinage of the United States. Yet now I find that practically no one will accept Canadian coins, despite the fact they're worth nearly as much as U.S. coinage. This annoys me, as it forces me to be sneaky in dumping my Canadian coins on unsuspecting souls, and I'd prefer to spend the money honorably.

Posted by Benjamin Kepple at January 7, 2007 09:07 PM | TrackBack
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