Big Mac Index Evidents Ukrainian Currency to Be World’s Most Undervalued
Kyiv, January 17, 2012. According to the most recent update of The Economist’s Big Mac index, the local currency in Ukraine is 50.2 percent undervalued. The price of a Big Mac in Ukraine is USD 2.11 – one cent cheaper than that in the runner-up country of Hong Kong.
Other undervalued currencies on the list included but were not limited to Malaysian ringgit, Chinese yuan, and South African rand. India has technically beaten Ukraine in the index since McDonald’s restaurants in the country do not offer Big Macs and a Maharaja Mac (made with chicken instead of beef) was used as a reference for the chart. A Maharaja Mac in India would cost mere USD 1.62.
At the beginning of 2012 the most overvalued currency, according to the Big Mac Index, was Swiss franc. A Big Mac in Switzerland costs USD 6.81. Norway is a close second with USD 6.79 worth hamburgers. Sweden, Brazil, Denmark, and Australia made it to the overrated currencies top list. The cost of Big Mac in the USA (USD 4.20) is traditionally set as a nil point for the research. The Big Mac index started as a humorous paper by Pam Woodall, published in 1986, and is now used as a valid economic measurement (e.g. in McConnell, Campbell; Brue, Stanley (2004). Microeconomics).
This result shows how much Ukrainian currency has deviated from its true value, according to the Law of One Price (one product needs to be priced equally in different countries). The law constitutes the base for the Big Mac index that relates to the theory of the Purchasing Power Parity. The theory claims that, in the long run, exchange rates should adjust to equal the price of a basket of goods and services in different countries.
As of January 17, 2012, the cost of Ukrainian hryvnia amounted to USD 0.125.
Recently, Forex Club in Ukraine named Ukrainian hryvnia to be one of the most stable currencies in Eastern Europe. Experts at the Club claimed that the National Bank of Ukraine intentionally slowed down the growth of the exchange rate of Ukrainian currency. This will provide stability for the domestic economy.
The exchange rate of the Ukrainian national currency stayed consistent over the last four years. Ukraine experienced massive inflation following the dissolution of the Soviet Union.