The local currency in Peru is the Nuevo Sol S/. ( Sol means sun).

You can exchange USA $ or Euros at almost any place, banks, money changing offices, hotels, restaurants and with street money changers. Beware of false notes. You are better off  exchanging at  money changing offices or  banks. You are better off getting your Soles in Peru than USA. per the Foreign Currency Express office in Los Angeles (shipping, insurance, etc.)

Many ATMs are available for all maor Credit Cards (Visa,Master Card,Cirrus, etc), but you need to plan to take cash if you go to  Aguas Calientes.  ATMs and banks are a rare find in those areas. Most ATM machines in Peru do not add any charge for withdrawing money from your home bank account, but your own bank might. Banks that add a surcharge for withdrawal are Interbank Globalnet ATMs, and Banco Continental (each adds a surcharge of about USA$2 per withdrawal).  In the Lima airport, the only ATMs are Interbank Globalnet, so there's no way to avoid a surcharge at the airport. You can withdraw money in Peruvian Soles or USA Dollars at most ATMs across the country.

If you want to buy tours in Cusco like Machu Picchu or Manu trips, you get a much better total cost paying the tour operator in cash. But that means you need a lot of cash from ATM’s. Tell your bank in advance, that you will be withdrawing substantial amounts of cash, so they can raise your limit. Many ATM’s are limited to how much you can withdraw per transaction, often 200USD or 700Soles. You will be hit by local surcharges (See above) and back at home you will be hit by a commission by your own bank. Shop around different ATM’s in order to find the bank’s with the highest withdrawal limit and no surcharge in Peru. The big international banks are the best, including HSBC and BCP does not charge you any surcharges, but have the 200USD limit per day.(The limit is actually given by your bank, not the local ATM.)

You can redeem travellers checks at most banks, but you will get lower exchange rates and be charged a comission. Do not  use travellers checks in Peru, as many places do not accept them. Only the owner of the traveller check can cash it at a bank, no endorsments are allowed.

The USA $ dollar is accepted at almost all comercial places, and many times, prices are quoted both in USA $ and S/. You can pay with dollars and receive dollars  or soles in exchange. Bring new crispy low denomination bills as they are well accepted by money changers. Old, torn or high denomination bills are not accepted. Like in the USA, any transaction in cash for USA $ 10,000 or more has to be reported to the local authorities.

The actual exchange rate in  May 2012, is fluctuating between 2.60 and 2.63 soles to one USA $.

Most U.S.banks will change USA $ to soles with a few days notice and a minimal fee, thereby not having to deal with exchanging in Peru, but will give you a much lower exchange rate.