In the “Golden Arches” We Trust
IN MCDONALD’S WE TRUST
“Golden Arches” may not be a household name here in Ukraine, regardless, it’s one handle for McDon-ald’s known the world over. Why you ask? Notice the colour and shape of the big bold M. As the world’s largest restaurant chain, it has immense status, which, in addition to wealth and power, cheesy (forgive the pun) references in art, film, culture, and yes – even economics, are often made.“In God We Trust” is a quote that ap-pears on every American dollar bill, five-and-a-half of which you’ll have to fork over in order to enjoy one of McD’s most popular burgers: the Big Mac. Here in Ukraine, the amount of local curren-cy one needs to part with in order to get your hands around this two-beef-patty burger is considerably different. McDonald’s is of course far from godliness. However it is indeed something Ukraine and many other countries in the world trusts. The trust for me far extends past its popularity and the Big Mac Index, or BMI, not to be confused with Body Mass Index (have you seen Super Size Me?).
FIVE YEARS ON FROM UKRAINE’S MOST RECENT REVOLUTION, THE COUNTRY IS MAKING ITS WAY SURELY, EVEN IF SLOWLY. ARE WE ON PAR WITH THE POLITICS AND ECONOMIES OF OTHER WESTERN COUNTRIES? AND HOW WOULD ONE EVEN GO ABOUT MEASURING WHETHER OR NOT WE WERE?
THANK GOD FOR MCDONALDS
THE OTHER BMI
The Big Mac Index was introduced by The Economist in the mid-1980s as an approach to gauge currency exchange values. Based on the theory of purchas-ing-power parity (PPP) and the idea that identical
products should cost the same in any two countries when comparing the difference in local prices and the differ-ence in the exchange rate, the BMI can give us a quick glimpse into how under-valued certain currencies are.As of July 2018, the BMI no longer ranked the Ukrainian hryvnia (UAH) as the most undervalued currency, a posi-tion which has been awarded to the Rus-sian ruble. Nevertheless, according to the BMI, the hryvnia is still undervalued by 65%. Allow me to explain.
The average price of a Big Mac in the US is $5.58, while the average cost of a Big Mac in Ukraine is 54 UAH. Where the implied cost of $1 is only 9.68 UAH, if we then compare the current exchange rate of $1 to 27.80 UAH, when consulting the PPP exchange-rate calculation, the UAH comes out to be undervalued by, yes, 65%.
Mac in Ukraine is 54 UAH. Where the implied cost of $1 is only 9.68 UAH, if we then compare the current exchange rate of $1 to 27.80 UAH, when consulting the PPP exchange-rate calculation, the UAH comes out to be undervalued by, yes, 65%. A TASTY FUTURE
The Ukrainian economy is long overdue to rebound and because the process is so painstakingly slow, Ukraine’s population, among other things, is on the decrease. De-spite this, I see a bright future for the coun-try, and it’s not because I’m an American (don’t hold that against). It’s because I have seen both good and bad markets in the US, and while they have been short-lived they have had far more damaging effects. The illustrious Big Mac Index may well be a sign of current economic temperatures, but we are certainly far from the deep-fryer.