Many luxury hotels and resorts abroad post their prices in a currency other than local currency. For example, the Four Seasons Costa Rica posts its prices in USD, and the Four Seasons in Budapest posts its prices in EUR. (Note it's not just FS hotels that do this, but those are two good examples.)

There are legitimate reasons for this practice. It makes it easier for visitors to understand the prices since most guests know the USD or EUR, but might be unfamiliar with the Colon or Forint. It also may provide the hotel a hedge against fluctuations in the local currency.

Many hotels, however, use the practice to squeeze a little extra out of their guests who pay with credit cards. Because they typically need to run credit card charges in local currency, they convert the guest's bill to local currency before charging the guest's card--and they use a rate that is quite favorable to the hotel. The result (ignoring any additional FX fees imposed by the guest's credit card issuer) is often a roughly 3% windfall for the hotel coming directly out of the guest's pocket.

For example, take a hotel that posts its prices (and keeps track of guests' bills) in USD but is located in a country where the local currency is the widget and the market exchange rate is 100 widgets to 1 USD. You run up a $500 bill at the hotel and they use a 103:1 exchange rate. They therefore charge your credit card 51,500 widgets. Your credit card then converts the charge back to USD at the prevailing rate, which is 100:1. You end up paying $515 (plus any additional fees your credit card company tacks on).

You can avoid this little scam by paying with cash or traveler's checks denominated in the same currency as the posted prices. If you hand them five Benjamins to pay your $500 bill, there's no opportunity for them to play conversion rate games.

A friend asked me today whether I thought gift cards would work to avoid the scam as well. Four Seasons, for example, sells gift cards denominated in USD.

This seems like a clever idea, since it allows you to not only avoid the conversion scam, but also to get credit card rewards for your purchase and avoid any credit card FX fees. The downside of course is that you effectively have to prepay for your trip.

FWIW, the FS gift card conditions of use include the following line: "If redeemed at a hotel/resort where local currency is other than U.S. dollars, the hotel's/resort's current exchange rate will be used to calculate credit." I would assume, however, that they are referring to the currency in which your bill is tracked, not the actual local currency, because it would be rather bizarre to have a $500 bill, hand them a $500 gift card, and be told you still owe $15. I imagine they'd have some pretty angry customers.

But I could see how there might be a small chance they use a credit-card-like processing system for gift cards that requires them to run the charge in local currency, in which case we'd be right back where we started. I simply don't know enough about how their gift cards actually work. Do they treat them like cash or like a credit/debit card purchase?

Can anybody confirm whether a USD FS gift card will allow my friend to avoid the FS FX scam at hotels that post prices and track bills in USD?