In November, the McDonald's restaurant in Pushkin Square in Moscow reopened after a three-month closing ordered by local health inspectors. The penalty was widely seen as retaliation for Western sanctions against Russia.
The restaurant was a predictable target. When it first opened in 1990, it symbolized the triumph of American capitalism over a crumbling Soviet Union.
Now it holds up a mirror to another American economic victory: the resurgence of the dollar. All but four currencies in our Big Mac index look cheap compared with the greenback. (The graphic below shows only a selection.) The ruble is the cheapest of all.
The index is based on the idea of purchasing-power parity, which says exchange rates should move toward the level that would make the price of a basket of goods the same in different countries.
Our basket contains just one item: a Big Mac hamburger. If the local cost of a Big Mac converted into dollars is above $4.79 (its price in the U.S.), a currency is dear; if it is below the benchmark, it is cheap.
Exchange rates are being buffeted by the euro crisis, the growing likelihood of a rise in interest rates in America, China's slowing economy and the sharp drop in the oil price, one of the drivers of the ruble's slump. By showing how much these forces have driven different currencies off course, the Big Mac gives a flavor of what may come.
For emerging-market currencies, cheap Big Macs are not necessarily a sign of an impending appreciation. That is because the cost of a burger depends partly on untraceable inputs, such as rent and wages, which tend to be lower in poor countries (gauges based on purchasing-power parity work best when comparing countries with similar income).
But not all emerging markets are equal: The countries whose currencies have fallen furthest recently are commodity producers. In fact, China's waning hunger for raw materials is afflicting rich and poor exporters alike.
Eventually, currencies that have fallen hard will become cheap enough to attract buyers. There is a price for everything — even currencies such as the South African rand and the Russian ruble, which investors see no merit in.
Who can resist a 60 percent discount?
Copyright 2013 The Economist Newspaper Limited, London. All Rights Reserved. Reprinted with permission.