IN NOVEMBER the McDonald’s restaurant in Pushkin Square in Moscow reopened following a three-month closure ordered by local health inspectors. The penalty was widely seen as retaliation for Western sanctions against Russia. The restaurant was a predictable target. When it first opened in 1990, it symbolised the triumph of American capitalism over a crumbling Soviet Union. Now it holds up a mirror to another American economic victory: the resurgence of the dollar. All but four currencies in our Big Mac index look cheap compared to the greenback. The rouble is the cheapest of all.
The index is based on the idea of purchasing-power parity, which says exchange rates should move towards the level that would make the price of a basket of goods the same in different countries. Our basket contains just one item: a Big Mac hamburger. If the local cost of a Big Mac converted into dollars is above $4.79 (its price in America), a currency is dear; if it is below the benchmark, it is cheap. In Pushkin Square a Big Mac costs 107 roubles, or $1.88 at the current exchange rate, two-fifths of the average price in four American cities. That in turn...
from The Economist: Finance and economics http://ift.tt/1KaiXt5
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