The whole truth about the real dollar
Very often, people compare prices in different countries, trying to understand where life is cheaper. This has a rational meaning, confirmed by scientific research. The Wall Street Journal developed the Latte Index, which can be used to determine in which countries the national currency is understated and in which it is overstated. It is easy to find out by comparing in dollars the cost of 0,3 ml of coffee in the Starbucks coffee chain in New York and other cities and countries of the world.
The coffee market, by the way, is very saturated in the modern world. Firstly, millions of people earn money on coffee plantations in Brazil and East Africa (Uganda, Burundi, Ethiopia), secondly, many people from the developed countries of Europe or North America are involved in the coffee business, and thirdly, it depends on coffee sales the well-being of not only the food service industry, but also of gas stations where this popular drink is traded. World corporations earn a lot of money on coffee, and coffee prices may well be considered indicators of a certain level of economic development and purchasing power of the population.
The Latte Index is not unique. For more than thirty years, since 1986, the British The Economist has been calculating the “Big Mac Index”, with which you can not only determine the true exchange rate, but also determine the positive or negative nature of changes in the economy specific states. Why is the value of bigmax indicative? It includes the main components of a classic consumer basket - meat, cheese, vegetables, bread, in addition, the cost of renting premises (i.e., prices on the real estate market), labor, transportation is taken into account. If the demand for fast food is high, then people earn more or less enough and can afford to eat on the street, if not, things are bad, because it is cheaper for people to bring ready-made food or even save on meals.
The Bigmack Index shows that the national currencies of a number of countries are underestimated. Among the most undervalued currencies are the Malaysian ringgit, the Egyptian pound, the South African rand, the new Taiwan dollar and ... Russian ruble. This suggests that in reality, living in Russia is cheaper than in the United States or Western Europe. So, the cost of bigmack in Russia is 56,6% cheaper than in the USA. That is, in the USA you can take a good burger for 5,3 dollars, and in Russia for 2,28 dollars. It turns out that the adequate value of the American currency is much lower than its price at the rate of Russian banks. But a weak ruble provides the Russian economy with certain advantages for its growth - this is the same situation as with the Chinese yuan, whose weak rate is artificially held by the PRC government to ensure the rapid development of the Chinese economy.
But, in addition to undervalued currencies, there are overvalued currencies - Swiss franc or Norwegian krone. This is not surprising - in Switzerland and Norway, high prices for most food products. A cup of coffee in Zurich is 67% more expensive than in New York. True, regional differences play a role here - Brazil is the main exporter of coffee, producing up to 40% of the global volume of this product. It is easier to deliver coffee from Brazil to the USA than to Switzerland.
The coffee market, by the way, is very saturated in the modern world. Firstly, millions of people earn money on coffee plantations in Brazil and East Africa (Uganda, Burundi, Ethiopia), secondly, many people from the developed countries of Europe or North America are involved in the coffee business, and thirdly, it depends on coffee sales the well-being of not only the food service industry, but also of gas stations where this popular drink is traded. World corporations earn a lot of money on coffee, and coffee prices may well be considered indicators of a certain level of economic development and purchasing power of the population.
The Latte Index is not unique. For more than thirty years, since 1986, the British The Economist has been calculating the “Big Mac Index”, with which you can not only determine the true exchange rate, but also determine the positive or negative nature of changes in the economy specific states. Why is the value of bigmax indicative? It includes the main components of a classic consumer basket - meat, cheese, vegetables, bread, in addition, the cost of renting premises (i.e., prices on the real estate market), labor, transportation is taken into account. If the demand for fast food is high, then people earn more or less enough and can afford to eat on the street, if not, things are bad, because it is cheaper for people to bring ready-made food or even save on meals.
The Bigmack Index shows that the national currencies of a number of countries are underestimated. Among the most undervalued currencies are the Malaysian ringgit, the Egyptian pound, the South African rand, the new Taiwan dollar and ... Russian ruble. This suggests that in reality, living in Russia is cheaper than in the United States or Western Europe. So, the cost of bigmack in Russia is 56,6% cheaper than in the USA. That is, in the USA you can take a good burger for 5,3 dollars, and in Russia for 2,28 dollars. It turns out that the adequate value of the American currency is much lower than its price at the rate of Russian banks. But a weak ruble provides the Russian economy with certain advantages for its growth - this is the same situation as with the Chinese yuan, whose weak rate is artificially held by the PRC government to ensure the rapid development of the Chinese economy.
But, in addition to undervalued currencies, there are overvalued currencies - Swiss franc or Norwegian krone. This is not surprising - in Switzerland and Norway, high prices for most food products. A cup of coffee in Zurich is 67% more expensive than in New York. True, regional differences play a role here - Brazil is the main exporter of coffee, producing up to 40% of the global volume of this product. It is easier to deliver coffee from Brazil to the USA than to Switzerland.
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