For example, in Russia a Big Mac costs $1.85, while in the US it is $3.22. Thus, the fair exchange rate between the Russian and American currencies is 15.2 rubles per $1. Given that the official rate is 26.48 rubles per $1, the ruble is undervalued by 42.5%, The Economist calculated.
The most undervalued currency is the Chinese yuan, which in burger terms is 56% cheaper than the current exchange rate. The Ukrainian hryvnia is also wronged, undervalued by 47%. But there are also those that lose out in the Big Mac conversion. The most overvalued currency turned out to be the Icelandic krona, whose real exchange rate is 131% higher. Meanwhile, the most expensive hamburger is sold in Switzerland at $5.05. For a cheaper burger, one can go to Egypt ($1.6), China ($1.41), and other Asian countries.
It may seem strange, but this remarkable index has been calculated in all seriousness for over 20 years. The authors of the idea of 'burgernomics' proceeded from the theory that prices for similar products in different countries should eventually converge (the so-called purchasing power parity theory). They took the Big Mac as the unit of measurement because it can be bought practically everywhere. Thanks to this, the number of countries included in the study today reaches 120. Moreover, the burger includes bread, meat, and vegetables, which allows it to be considered a conditional reflection of a food basket.
Supporters of the idea like to say that the calculations often hit the mark. For example, in 2002 the Big Mac index showed that the dollar was significantly overvalued relative to most currencies. And over the following year, its exchange rate fell by 12%.
But the burger index also has its critics. The Big Mac is not a tradable good, they point out, while that is one of the requirements of purchasing power parity theory. Moreover, its final price is distorted by taxes, tariffs, and the cost of rent or restaurant construction.