A currency that even Soros cannot control

A HUMBLE burger it may be, but to the economists of the world the Big Mac is more than just a fried meat patty in a sesame-seed bun.

The gravity of the crisis in Russia is laid clear by a financial analysis of the price of a Moscow burger. For along with platinum and gold, the Big Mac is a financial yardstick by which the value of world currencies can be measured.

The Big Mac Index was first published by The Economist in 1986 as an exercise in examining how the price of a Big Mac differed in McDonald's restaurants around the world.

It showed that the burger was a very good indicator of the state of the dollar in those countries. In 1993, the index was recalculated to show the over- or undervaluation of each local currency against the dollar.

As the Big Mac celebrated its 30th birthday, a snapshot survey by The Independent found the Big Mac ($2.63 in the US) did indeed work like a financial barometer.

A Muscovite will find the plunging rouble has 71 per cent less purchasing power when it comes to buying the burger. In the UK, the strength of the pound secures a Big Mac for pounds 1.84 but hints at a 17 per cent overvaluation of sterling. The world's most expensive Big Mac can be found in Helsinki where Finns pay the equivalent of about pounds 2.40, but the index indicates their currency is overvalued by 44 per cent.

Looking back over the last decade, shrewd investors could have avoided the worst of the Asian crisis by using the index. As long ago as 1989, it showed there were problems ahead, with South Korea overvalued by 78 per cent and the Japanese yen 38 per cent overvalued compared to the dollar.

The theory behind the Big Mac Index is based on purchasing power parity (PPP), the idea that a shopping basket of identical goods should (in theory) cost the same in all countries. In this case, the Big Mac is the basket item and dividing a country's local currency price for the burger by the Big Mac's dollar price gives the Big Mac's PPP. The index has become a fixture of financial analysis and is now published quarterly.

The Golden Arches Standard

Cost of a Implied Dollar exchange Under/over-

Big Mac PPP* rate, 4 September valued against

US$, as %

Russia 13 roubles 4.94 17 -71

Hong Kong 10.20 HK dollars 3.88 7.74 -50

Finland 20 markka 7.60 5.28 +44

South Africa 8 rand 3.04 6.23 -51

Mexico 15.6 peso 5.92 10.2 -42

Japan 280 yen 106 134 -21

UK pounds 1.84 0.7 0.598 +17

US $2.63 - -

* purchasing power parity - the local price divided by the dollar price

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
News
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Business Development Manager / Sales - OTE £45,000

£35000 - £45000 per annum: Recruitment Genius: This company is a solutions / s...

Recruitment Genius: Sales Executive - OTE £45,000

£18000 - £45000 per annum: Recruitment Genius: A Sales Executive is required t...

Recruitment Genius: Test Development Engineer

£35000 - £40000 per annum: Recruitment Genius: Are you inspired to bring new a...

Recruitment Genius: Trainee Motor Engineer

£14000 - £18000 per annum: Recruitment Genius: This is an exciting opportunity...

Day In a Page

Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific