Everything you need to know about your money in Spain.
See also: Tips for Cheap Travel in Spain
Paying by Cash in SpainPaying by cash is obviously the easiest way to pay in Spain. You have three main ways of getting your cash - travelers checks, ATMs (cash machines) and exchanging your money inside a bank or at a bureau de change.
Exchanging Money in Banks in SpainIt is possible to exchange most major international currencies in most banks in Spain. However, the exchange rate will be no better than the ATM and you'll have added disadvantage of having to stand in line for a long time as well. Spanish banks also close very early (by 3pm on most days. You'd be better off using ATMs.
Using Credit & Debit Cards in SpainIn theory, it is possible to use your foreign credit or debit card in stores and (some) restaurants in Spain. However, in practice, many shops' credit card machines are out of date and aren't very good at accepting foreign cards. I wouldn't rely on this as a form of payment - always carry enough cash just in case your card isn't accepted.
Note: in Spain, it is a legal requirement to show photo ID when paying by card. This is in addition to signing the receipt (and, sometimes, typing in your PIN). However, many shops would rather take your money than risk losing business, so if you don't have your passport with you, it is often possible to get them to accept your card anyway.