Now all the Christmas bills are in and the credit card statements have been read with varying degrees of horror, the usual bout of post-festive financial indigestion has been sharper than usual on account of the rising strength of the euro.
The toys, trinkets and other must-haves bought in the stores and boutiques of La Cañada and Jerez which were so appealing in the pre-Christmas build-up, do not look such bargains now. Although the euro has seen a near doubling of its value against the US dollar to $1.50 since it hit a low of 85 cents in early 2003, the euro’s strength against sterling has been considerable too. (see graph)

In theory this should be good news for Gibraltar’s local traders as the Rock’s consumers become more selective due to increases in the cost of living coupled with deteriorating economic conditions. Traditional habits though, such as the weekend shopping trips to Spain, are proving harder to break despite the fact that the cost of such trips has risen by 20 per cent since last year, once the strong euro and price increases are factored in.
However Gibraltar’s traders are losing out for another reason. Whilst the euro has greater buying power for Spaniards and other shoppers visiting the Rock, the rate of exchange charged by some local traders when a customer pays euros in cash, is quite simply exorbitant. One complaint received by the Chamber from some recent visitors made the following comment about being charged a conversion rate of E2: £1.
“This is outrageous treatment coming from a locality that has such dependency on tourism. Shame on Gibraltar!”
The market rate at the time was £1: E1.34.
We all know that the euro is not legal tender in Gibraltar and it is up to the trader to decide whether or not to accept payment in euros and they are free to set whatever exchange rate they wish. But charging a rate 50 per cent higher than the market rate seems pretty excessive.
“Needless to say,” the disgruntled visitors said on their departure, “we shall not be returning to the Rock and we will be sure to relay our experiences to all our British and foreign friends.” Is this really the impression we want to create among visitors? It seems clear that the majority of local traders are reasonable on the exchange rate but what can be done about those few traders who think visitors are fair game to be so brazenly exploited?
Inevitably the temptation by some traders to augment profits by levying excessive exchange rates can be great, but the impression left on the visiting tourist does tremendous damage to Gibraltar’s reputation over the time.
A quick straw poll conducted recently, revealed most of the local traders in shops, bars and restaurants who were asked, use a rate of between E1.33 to E1.60 for the those customers paying euros in cash.
One difficulty some retailers face, is keeping up with volatile changes in the exchange rate. Some set their exchange rate for the year and to change the rate on their cash tills can necessitate calling a software technician, which involves additional cost. Also, local retailers accepting euros in cash, have to pay commission on converting them back into sterling at the bank.
Other retailers can be hampered if their merchandise shows both sterling and euro prices on the product’s label. Changing the exchange rate at the till would only confuse the shoppers.
Shoppers who do not have any sterling cash should be advised that the exchange rate for cash will not be as competitive as the market rate. They would then have the option to go to a bureau de change or pay euros in cash. A reasonable loading might be around 15 – 20 per cent over the bank rate.
The easiest way round this of course, is to encourage shoppers who do not have sterling cash to use their credit card instead. Credit card companies charge
a rate that is far closer to the market rate at the time the transaction takes place. It may not be as profitable as a one-off cash transaction charging 50 per cent above the market rate, but neither will it risk damaging the reputation of Gibraltar as a shopper-friendly destination. And, what is more, they may even come back again.