Some optimists are sure that the U.S. dollar is overvalued as the U.S. national currency has successfully breached psychological milestones and is set to conquer new high as if it is an experienced mountaineer. Not to be proofless, the supporters of the “digestible exchange-rate theory” address to the latest quotes of the Big Mac index. For your reference: since 1986 the economists have been tracking this original index to measure the purchasing power parity comparing the prices of an average Big Mac sold in different countries thus identifying the exchange rates.
However, let’s get it from soup to nuts. Thus, in Russia you can buy a Big Mac for 89 rubles in January, or 2 dollars and 62 U.S. cents. Nevertheless, in the USA it costs $4.62. With the help of simple calculations, The Economist could figure out that the Russian ruble is underestimated against its U.S. counterpart by 34.8%. Hence the U.S. dollar real value is 19 rubles and 25 kopecks. Moreover, some other currencies are also overheated. In India a Big Mac costs 95 rupees which is only $1.54 suggesting that the rupee is 67% underestimated. If some complain of being underestimated, the others are being undercooked instead. By contrast the Norwegian krone is the overheated by whooping 67%. Norwegians can taste a burger for 48 krones or 7 dollars and U.S. cents. However, the Russian regulator keeps its opinion. The U.S. dollar was trading at 34 rubles and 70 kopecks early this week. Currently, the greenback hovers above its 5-year high against the ruble. Meanwhile, there are no those wishing to sell dollars at the rate of 19 rubles and 25 kopecks or exchange them for Big Macs at the corresponding rate.
