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National Bank explains low position of Ukrainian hryvnia in Big Mac Index

Source : 112 Ukraine

The Big Mac Index showed in January 2019 that hryvnia is one of the most underestimated currencies of the world
14:08, 17 January 2019

The Economist

Ukrainian hryvnia is one of the outsiders of the Big Mac Index as there are too low prices in Ukraine and dollar is highly overestimated in the world market as Finance Club reported citing Deputy Head of the National Bank of Ukraine (NBU) Oleg Churiy.

The Economist found Russian ruble the most underestimated currency in the world, by 70,4% in comparison with U.S. dollar. The course of Ukrainian hryvnia is underestimated by 65,2% and Turkish Lira with 64,2% closes TOP3 of the outsiders.

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“If you carefully read The Economist research, not only Ukraine has the underestimated currency. It is about a few dozens of countries, which are underestimated toward dollar by 50-60%. But there are many reasons for it. First of all, the U.S. dollar is very powerful and overestimated currency. In other words, dollar is overestimated in comparison with many currencies of the countries, which develop,” Oleg Churiy said.

He noted that the Big Mac Index is not the sign that “the course should return at some level counted on this index”.

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“It is more long-term trend, which can witness that the currencies can strengthen,” he emphasized.

It is also stated that the Big Mac Index is defined from the theory on the parity of the purchasing power, according to which, the exchange resources of the currencies should level off in accordance with the prices for the same product basket in different countries in the long-term prospect.

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“Moreover, it witnesses not only the exchange rate but also the level of the prices. It means that there are really low prices in Ukraine for these goods in comparison with many countries of the world,” Churiy said.

The NBU notes that its policy is not based on the Big Mac Index.

“For us, The Economist calculation is interesting from the point of view of the things happening in other countries but it is definitely not an index of what we should do.”

Related: Ukrgasbank receives $17 million of trade finance from European Bank

In 2018, Ukraine’s national currency, hryvnia was recognized as one of the world’s most undervalued currencies according to the Big Mac Index.

Burgernomics was never seen as a precise gauge of currency misevaluation, it only served as a tool to make exchange-rate theory more digestible. The Big Mac index, however, has become a worldwide standard, has been included in a variety of economics textbooks, and has become the subject of at least 20 academic research papers.

Related: Ukraine’s National Bank withdraws banking license of Russian “VTB Bank”

As we reported, Ukraine took the 84th place in the Democracy Index 2018 out of 167 countries of the world and the 17th place in Europe.

 

 

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