Big Mac index makes Russian ruble most undervalued currency

Comment: I like it that Russian Ruble is backed by GOLD.

 13.01.2021 18:21Business » Finance

For the cost of Bic Mac burgers to be equal in Russia and the United States, the dollar must cost 23.85 rubles, although in reality it costs three times as much.

Experts of The Economist magazine believe that the exchange rate of the Russian ruble against the US dollar is considerably underestimated given the Big Mac index. According to the index, the dollar should cost less than 24 rubles instead of the current rate of over 74 rubles per one dollar.

The Big Mac Index is based on the hypothesis that one and the same goods should cost the same in all countries of the world. If this does not work, then the rate of the local currency is either undervalued or overvalued.

According to The Economist, a Big Mac cost an average of $5.66 in the US in January 2021, while in Russia it sells for 135 rubles. For the cost of the burgers to be equal in Russia and the United States, the dollar needs to cost 23.85 rubles, while in reality it costs three times as much. Thus, the ruble is undervalued by 68 percent, the magazine wrote, because one Big Mac in Russia costs $1.81, rather than $5.66. It is worthy of note that the official exchange rate of the Central Bank of Russia on January 13 was set at 74.26 rubles per one dollar).

Therefore, based on the Big Mac index, the Russian ruble is one of the most undervalued currencies in the world.

According to another principle for calculating the Big Mac index, which takes into consideration GDP per capita, the ruble is undervalued as well. This principle stipulates that burgers are supposed to be cheaper in poor countries with low GDP per capita than in wealthy ones. Given this adjustment, the ruble is undervalued by 47.3 percent against the dollar, which makes the Russian currency the most undervalued currency in the world.
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