MIGHTY MAC DEFINES WORLD-WIDE CURRENCY
For several years, the newsmagazine The Economist has published an international currency valuation index comparing the cost of a U.S. Big Mac with many of the rich countries of the world. The purpose is to provide the range of currency exchange values relative to the United States dollar by comparing the cost of a McDonald’s burger.
This may seem like a joke, but this “Big Mac Index” has become an international guideline for currency valuations used by financial institutions and governments of foreign nations for years. It’s a simple procedure: list the cost of a Big Mac hamburger in 15 different countries beginning with the most expensive down to the least cost.
The analysis of the results provided by The Economist gives plenty of opportunity for tongue-in-cheek play on words. For instance, the headline for the article is “The All-meaty Dollar.” Another reference is made to “burgernomics.”
All of this publicity is great for McDonald’s Corporation which has been receiving considerable publicity from the new film called “The Founder” dramatizing the early years of Ray Kroc’s creation of the fast-food industry. The application of the Big Mac cost is viable because the company controls the ingredients and preparation worldwide. In other words, a Big Mac purchased in Brazil will be exactly like the same product in the U.S. or other countries.
In the 2017 Big Mac Index, the United States ranks fifth at a cost of $5.06. The top of the list is Switzerland with a cost of $6.35; the bottom of the index is Russia where a Big Mac can be purchased at the bargain price of $2.15.
That comparison tells you something about the value of each nation’s currency in relation to the U.S. dollar. It also confirms the fact that the greenback is a strong currency in the international trade market. That is not good for the exporters. but imports come cheaper.
Recent foreign nation currency declines as a result of the Trump economy and Brexit are reflected in the current index. Mexico has suffered a 60% decrease in the peso; the euro is down 20% and the British pound 26% from their 2016 highs; the Chinese yuan is 44% undervalued to the dollar due to an economic recession from declining markets.
Still, the Scandinavian countries and Switzerland not connected to the EU currency remain the strongest currencies in the international market place. This might change if the dollar continues to strengthen under the Trump economy proposing to break trade treaties and imposing import duties or taxes on foreign goods.
In the meantime, Americans will get more burgers for their buck while abroad.