Big Mac index: U.S. dollar in Ukraine should cost no more than UAH 11

The Ukrainian hryvnia, the national currency, is one of the world's most undervalued currencies since as of January 2021, the U.S. dollar in Ukraine should cost no more than UAH 11, according to the so-called Big Mac index.

Read alsoU.S. dollar may weaken against hryvnia by weekend – expert"A Big Mac costs UAH 62 in Ukraine and US$5.66 in the United States. The implied exchange rate is UAH 10.95. The difference between this and the actual exchange rate, UAH 28.14, suggests the Ukrainian hryvnia is 61.1% undervalued," The Economist wrote.

Lebanon's pound is considered the most "undervalued" currency, while the Swiss franc tops the ranking of "overvalued" currencies.

Calculation of currency index

The starting point in the calculation of a currency index is the price of the Big Mac in the United States, the country of origin of the dollar, which is compared with the cost of the burger in any other country worldwide.

Big Mac Index history

The Big Mac index was invented by The Economist in 1986 as a lighthearted guide to whether currencies are at their "correct" level. It is based on the theory of purchasing-power parity (PPP), the notion that in the long run exchange rates should move toward the rate that would equalize the prices of an identical basket of goods and services (in this case, a burger) in any two countries.

Burgernomics was never intended as a precise gauge of currency misalignment, merely a tool to make exchange-rate theory more digestible. Yet the Big Mac index has become a global standard, included in several economic textbooks and the subject of at least 20 academic studies.

Background

• In January 2020, the U.S. dollar in Ukraine had to cost UAH 10, according to the Big Mac index ranking.
• As of July 2019, the U.S. dollar exchange rate in Ukraine had to be UAH 9.90.