The ERM Crisis: Travel: Be canny with holiday cash

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The Independent Online
HOLIDAYMAKERS travelling to the Continent this summer could save up to 5 per cent on the cost of their spending money if they time the purchase of their foreign currency carefully.

Thomas Cook is advising British tourists to buy any local currency they need in August as soon as the expected ERM suspension occurs.

'Money markets always over- react,' said Ian Spight, director of financial services at Thomas Cook. 'If there is a break-up of the ERM we could see a devaluation of between 5 and 10 per cent on currencies like the Spanish peseta, the French franc and the Portuguese escudo.'

But he warned: 'Rates will come back when the governments begin to bring down interest rates. There will probably be a week before the pendulum swings back.'

Holidaymakers will not forfeit more than a few pence in interest on bank and building society accounts if they take out pounds 500 or pounds 1,000 a few weeks early.

Thomas Cook is warning travellers against using plastic while on holiday. Credit card transactions can take several weeks to show up on a client's statement. By that time the local currency may have recovered.

Holidaymakers are advised to buy local currency traveller's cheques or even, when travelling to Portugal, to take local currency in cash if traveller's cheques are not available there.

American Express is recommending holidaymakers to leave their arrangements to the last possible moment. The worst move would be to buy up local currency well in advance of going abroad. Many banks and building societies now offer a 24- hour ordering service.

People going on holiday before an ERM suspension should take sterling traveller's cheques, Barclays Bank said yesterday. Finding outlets to accept the cheques would be more difficult but there would still be the benefit of a relative appreciation in the value of sterling.

An extra allocation of local currency cash will be particularly important in EC member states. Banks across Europe refused to exchange money for several hours when Britain crashed out of the ERM on Black Wednesday.

Even those British holidaymakers caught in the worst scenario - travelling in Europe with large amounts of local currency at the time of an ERM suspension - are still not expected to suffer heavily.