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I can't speak for the Canadian side, but I grew up in El Paso. El Paso is right on the Mexican border with another large Mexican city on the other side, Juarez, and a fair amount of travel in both directions. On the US side, everything is done in dollars. On the Mexican side, pesos or dollars both generally work. I can't answer how Mexicans get ahold of dollars -- it's just never been a problem I've had to solve. I would suspect it's similar to when I've gotten local currency outside the US. There are currency exchange places, though I've only seen them in airports, your CC does the conversion automatically, an ATM does, or you go to a bank.

> your CC does the conversion automatically

At a markup. This was 1% for Visa and MasterCard back in ~2006 when I looked into it.

ahlatimer gave you the southern perspective, and for the Canadian side, my experience says that a store will take your foreign currency at (approximately) the exchange rate, but you'll get local currency as change. As you get further from the border, a vendor will still take your funny money, but "at par": my $20 U. S. buys me $20 Canadian in goods. Which currently means I, a holder of U. S. currency, get screwed by 28%. That's the penalty for not finding a Canadian ATM or using a credit card.

On the U. S. side, it would appear, according to signs at the cash registers, that many U. S. vendors work in a similar manner. The registers signs disappear within tens of miles of the border.

Some credit cards charge international fees, some do not.