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
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs General

Recruitment Genius: Office and Customer Services Manager

£18000 - £24000 per annum: Recruitment Genius: This small but very busy (and f...

Recruitment Genius: Portfolio Administrator

£14000 - £16000 per annum: Recruitment Genius: This company has become known a...

Recruitment Genius: Mechanical and Electrical Engineer - Midlands

£35000 - £38000 per annum: Recruitment Genius: This leading provider of refrig...

Recruitment Genius: Sales / Account Manager

£22000 - £25000 per annum: Recruitment Genius: A Sales / Account Manager is re...

Day In a Page

War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

Baghdad fights to win back Tikrit from Isis – but then what?

Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable
Living with Alzheimer's: What is it really like to be diagnosed with early-onset dementia?

What is it like to live with Alzheimer's?

Depicting early-onset Alzheimer's, the film 'Still Alice' had a profound effect on Joy Watson, who lives with the illness. She tells Kate Hilpern how she's coped with the diagnosis
The Internet of Things: Meet the British salesman who gave real-world items a virtual life

Setting in motion the Internet of Things

British salesman Kevin Ashton gave real-world items a virtual life
Election 2015: Latest polling reveals Tories and Labour on course to win the same number of seats - with the SNP holding the balance of power

Election 2015: A dead heat between Mr Bean and Dick Dastardly!

Lord Ashcroft reveals latest polling – and which character voters associate with each leader
Audiences queue up for 'true stories told live' as cult competition The Moth goes global

Cult competition The Moth goes global

The non-profit 'slam storytelling' competition was founded in 1997 by the novelist George Dawes Green and has seen Malcolm Gladwell, Salman Rushdie and Molly Ringwald all take their turn at the mic
Pakistani women come out fighting: A hard-hitting play focuses on female Muslim boxers

Pakistani women come out fighting

Hard-hitting new play 'No Guts, No Heart, No Glory' focuses on female Muslim boxers
Leonora Carrington transcended her stolid background to become an avant garde star

Surreal deal: Leonora Carrington

The artist transcended her stolid background to become an avant garde star
LGBT History Month: Pupils discuss topics from Sappho to same-sex marriage

Education: LGBT History Month

Pupils have been discussing topics from Sappho to same-sex marriage
11 best gel eyeliners

Go bold this season: 11 best gel eyeliners

Use an ink pot eyeliner to go bold on the eyes with this season's feline flicked winged liner
Cricket World Cup 2015: Tournament runs riot to make the event more hit than miss...

Cricket World Cup runs riot to make the event more hit than miss...

The tournament has reached its halfway mark and scores of 300 and amazing catches abound. One thing never changes, though – everyone loves beating England
Katarina Johnson-Thompson: Heptathlete ready to jump at first major title

Katarina Johnson-Thompson: Ready to jump at first major title

After her 2014 was ruined by injury, 21-year-old Briton is leading pentathlete going into this week’s European Indoors. Now she intends to turn form into gold
Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot