The Big Mac index shows that the Russian currency is once again the world’s most undervalued against the greenback. The Economist calculated the ‘real’ currency exchange rate based on the cost of a Big Mac in different countries.
The Swiss franc is the most overvalued currency, followed by the US dollar. The British magazine reports that a Big Mac costs $5.74 in the United States and RUR 130 in Russia, or around $2. Therefore, if the unconventional rating is to be believed, the Russian ruble is almost three times weaker than the dollar. Still, some experts indicated that in many Russian regions the price of a Big Mac exceeds RUR 150 ($2.39) which makes it less underrated.
As is known, the rate of the Russian ruble is strongly dependent on oil prices – which is now stable; however, in 2014 when the “black gold” collapsed, the Russian currency dropped in value almost by half (against the dollar).
The Big Mac index was invented by The Economist back in 1986. The rating determines whether the currencies are placed “correctly” against the dollar as the world’s main currency. The index is based on the theory of purchasing-power parity, according to which in the long term exchange rates must gravitate towards the rate that would equalize the prices on an identical basket of goods and services (i.e. a Big Mac) in all countries.