The Russian ruble is once again the most undervalued currency in the world

The Big Mac index shows that the Russian ruble is undervalued by 70%

The Economist Magazine has just published its annual report “Big Mac Indexin which it measures the strength of global currencies based on the benchmark price of a Big Mac burger in the United States. If the price of a Big Mac in dollars is higher than in the United States, the currency corresponding is considered overvalued, and if it is lower, then vice versa.It shows both the strength of the currency and the role of the United States in manipulating the economic strength of the countries it wishes to artificially subjugate in terms of their ability to purchase goods internationally.

The Big Mac Index was invented by The Economist in 1986 as a light guide to whether currencies are at their “correct” level. It is based on the theory of purchasing power parity (PPP), the idea that over the long term exchange rates should approach the rate that would equalize the prices of an identical basket of goods and services ( in this case, a burger) in two countries.

The Russian ruble has again become the most undervalued currency in the world, while according to the Big Mac index, a Big Mac currently costs 5.81 USD in the United States (about 444 rubles), while in Russia it costs 135 rubles, or 1.77 USD. . Thus, the correct exchange rate for the Russian currency should be 23.24 rubles per dollar. Instead, it’s trading at 76 to the dollar, a value removed at 1/3 of what its true rate should be. The Russian economy is actually the 12th in the world with a GDP of US$1.7 trillion and grew by 4.1% in 2021.

Associate Professor at the Russian University of Economics. GV Plekhanov Denis Domashchenko said that the ruble has become one of the most undervalued currencies in the Big Mac index because McDonalds can still operate profitably with such low prices in the Russian market in terms of the cost of production, salaries, rental of premises and other expenses.

The second most undervalued currency is the Turkish lira (undervalued by 67.9%), which was specifically targeted by the United States in response to the perceived anti-Western reforms introduced by President Erdogan. Turkey’s economy is also significant, being the 18th in the world with a GDP approaching the trillion dollar mark at US$810 billion. It increased at a rate of 10.5% in 2021.

At the other end of the scale, only two currencies are overvalued – the Swiss franc (by 20.2%) and the Norwegian krone (by 10%). In previous ratings, the Swedish krona was also included in this list, it is now considered undervalued by 0.4%. With all other currencies undervalued against the US dollar, this implies that the base currency itself is significantly overvalued in global terms. This in turn led to more and more views that global currencies should once again revert to a type of commodity standard like the gold standard was instead of being debt-based. American.

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Briefing Russia is written by Dezan Shira & Associates. The company has 28 offices across Eurasia, including China, Russia, India and ASEAN countries, assisting foreign investors in the Eurasian region. Please contact Maria Kotova at [email protected] for Russian investment advice or assistance with market information, legal, tax and compliance issues throughout Asia.

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