Pesos vs. Dollars in Cabo: The Tourist Money Trap That’s Costing You

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You’ve navigated the timeshare gauntlet at the SJD airport, found your shuttle, and finally dropped your bags at your Cabo resort. You head to a bar on Medano Beach, order that first perfect margarita, and ask for the bill. The server says, “That’ll be 12 dollars or 200 pesos.”

You hand over the dollars because it’s easy. But what you don’t realize is you just paid a 20% surcharge for that convenience.

Welcome to the “Tourist Tax.” It’s not an official tax, but it’s a very real phenomenon we see every day here at The Cabo Sun. It’s the hidden cost of using U.S. dollars in a country that runs on pesos, and it’s silently draining the wallets of thousands of otherwise savvy travelers.

While dollars are accepted, they are not the smart way to pay. Here is the definitive guide to handling money in Los Cabos to ensure you’re getting the most value out of every dollar you spend.

The Made-Up Math of the “Tourist Exchange Rate”

Here’s the core secret: when a business in Cabo accepts your U.S. dollars, they are not using the official bank rate. They are, in effect, inventing their own exchange rate for the day, and the math will always, always be tilted in their favor.

Let’s use a real-world Cabo example:

• The official exchange rate is $1 USD = 18.75 MXN.
• You want to take a water taxi from the marina to Lover’s Beach. The captain quotes you 400 pesos.
• At the official rate, that trip should cost you $21.33 USD.
• However, the captain’s “boat rate” for the day is a simple 16 pesos to $1. He does this for easy math, not to help you.
• He tells you the price is $25 USD.

You just paid nearly $4 extra—an 18% markup—for a single, short boat ride. Now, multiply that by every tip, every taxi ride, every souvenir, and every meal for a week. The “Tourist Tax” adds up to a fortune over the course of a vacation.

The Credit Card Choice: How to Avoid the Digital Pickpocket

This trap feels helpful, which makes it even more dangerous. You’re paying for a nice dinner at your resort, and the credit card machine gives you a choice: charge in USD or MXN?

It’s a test, and Mexican Pesos (MXN) is the only correct answer.

When you choose to be charged in USD, you are authorizing a practice known as Dynamic Currency Conversion (DCC). Think of it like this: you’re letting the restaurant’s payment processor (a third party who wants to make a profit) set the exchange rate instead of your own bank. Their rate will be terrible, and it’s pure profit for them.

When you choose MXN, you are telling your own bank (Visa, Mastercard, AMEX) to handle the conversion. They use the near-perfect interbank exchange rate because their business is processing payments, not scalping you on currency conversion.

The Smart Cabo Money Playbook

Avoiding these traps is easy when you have a plan. Follow these three simple steps.

Your First Move: Use a Bank ATM at the Airport

After you collect your luggage at SJD, your first mission is to find a real bank ATM. Walk with purpose past the aggressive vendors and the standalone, high-fee private ATMs. Look for an ATM physically attached to a major bank like Banorte, Santander, HSBC, or Scotiabank. Withdraw a good amount of pesos for your trip right then and there. It will be the best exchange rate you get all week.

The Big Bills: The “No-Fee” Credit Card Rule

For large, important purchases—like your final hotel bill or a fancy dinner in downtown San José del Cabo—always use a credit card that advertises no foreign transaction fees. When presented with the payment terminal, simply tell the server, “En pesos, por favor.” This simple phrase can save you 5-10% on every single large transaction.

Daily Life: Pesos for Taxis, Tips, and Tacos

For everything else, pesos are king. Taxis in Los Cabos notoriously quote high, flat rates in dollars. Paying in pesos often gives you more negotiating power and ensures a fairer price. For tipping your fishing boat crew, your housekeeper, or your waiters, using pesos is not only easier for them (U.S. coins are impossible for them to exchange), but it’s a sign of a respectful and savvy traveler.

Using pesos isn’t just about saving money—it’s about having a smoother, more authentic experience. The “Tourist Tax” is entirely optional, and now you know exactly how to avoid paying it.

Happy Travels!