That all sounds VERY strange. At least in the past the credit card
companies ONLY allowed local currency billing. One guy I know went to
South America and a guy in his hotel (who did not know the rules) were
so horny for USD that he persuaded the guest to pay the hotel bill in
USD via credit card.

When coming back home to Europe he was very surprised to get a
withdrawal of only a few EUR - why?

The credit card company do not allow other than local billing, thus he
paid in local currency and not USD. Cheap! the rate was about 100:1 or
so.

Wonder if this temporary hotel guy had to pay?

Well in the past no one else did foreign exchange conversion other than
Visa/Mastercard and your card issuer. But as the former started making a lot
of profit out of it, by tacking on 2-3% conversion fee (1% by Visa/Master
and the rest by card issuer, usually hidden in the rates used so not always
obvious to cardholder), someone said. 'Hey, can't we get a slice of this
lucrative market by doing the conversion upfront and keeping the transaction
entirely in the card's billing currency?' Once they comply with Visa/Master
rules by giving customers a 'choice' of billing currency, then the operation
is entirely legitimate.
For some cardholders, it must be said that they are no worse off as DCC
rates are pretty in line with what they would get by traditional method as
they are charged by card issuers (and might welcome the 'transparency' of
knowing exactly how much it costs), but for others who hold a card with no
foreign exchange fees (like Nationwide in UK and some credit unions in US),
the loss can be as much as 3-3.5%.

Alec