You may look at the title of this article and wonder how hamburgers prove that the value of the dollar is way too high. But when you look at it, the value of a dollar is what determines how expensive things are comparative to their worth. For this reason, you’ll find products that are cheaper or more expensive in other parts of the world. Burgers are yet one indicator to show exactly what we mean.
The Economist put together what they called “The Big Mac Index.” This index was their way of showing exactly how high the dollar is valued compared to other currencies. It looks at what it costs to buy a Big Mac burger in other countries and how much we would pay for that same sandwich here in the United States. The Big Mac Index is quite revealing.
The exchange rates we see with the dollar versus other currencies really reflect the value of goods across the spectrum. It allows us to see which currencies are over or undervalued. The indicator put together during the Big Mac Index revealed that the dollar has been growing increasingly stronger over the past few months and it was pretty strong to begin with.
The Cost of a Big Mac
With the Big Mac Index, we can see how different currencies stack up against each other. For example, the Euro has fallen in recent months. You can get a Big Mac at McDonalds in Europe 19% cheaper than you can in the states. Just 6 months ago, it was 17% cheaper, so you can see how the currency has lowered in value. It’s also a good indicator of just how inflated the U.S. dollar is comparatively.
In Russia, you can buy a Big Mac for $2. That’s because their ruble is 65% undervalued compared to the dollar. The cost in the U.S. is about $5.74, so you can start to see the differences and how much the value of our money can impact prices. We wonder why prices seem to continue to go up, and this is why.
The U.S. dollar is so overvalued that there is only one country that is higher currently. The Swiss franc is 14% higher than the dollar, which makes the cost of a Big Mac there $6.60. It’s quite interesting to see the disparity of prices around the world for the same burger. There’s no wonder why President Trump and 2020 Democratic candidate and Senator Elizabeth Warren have both come out in favor of lowering the value of the dollar.
If goods are more expensive here in the states, it really hurts the economy. Wages and jobs are still growing each month, but if goods become too expensive, it can really damper how much we are able to buy. Quite frankly, when the always reliably cheap McDonald’s starts bumping up their costs, more families are going to think twice about eating out there.
We Can Expect a Lower Dollar Soon
One debate currently raging right now is whether the Fed will cut interest rates later this year. The higher dollar makes it difficult for the U.S. to continue their dominance on the world market. It gives us a disadvantage and allows other economies to catch up. That’s why politicians across the spectrum believe a weaker dollar is good for the country.
During his campaign and even as president, Trump has long accused several countries of being currency manipulators. Russia and China are two of the worst ones, but even Europe has been deploying the tactic as of late.
