The Most Undervalued Currency of G20 Countries Revealed

The Most Undervalued Currency of G20 Countries Revealed
Photo by Brett Zeck / Unsplash

In the early fall, the Russian ruble has emerged as the most undervalued currency among the G20 nations. Based on the calculations from RIA Novosti, its rate should be approximately 33 rubles per US dollar.

Earlier, a ranking of G20 countries was published based on the cost of a combo meal, consisting of a burger, fries, and a glass of cola. According to the data, the cheapest meal can be found in Russia, while the most expensive one is in Germany. Using this data as a benchmark, the agency determined the currency exchange rates in terms of purchasing power relative to the US dollar.

The ruble's exchange rate, when adjusted for purchasing power parity (PPP), is three times less than the current rate and stands at 32.07 for one dollar. Experts explain that Russia has the highest purchasing power parity among all.

The Indonesian rupiah ranks second in the list. Its rate is 2.2 times better than the official one, at 6,900 rupiahs per dollar instead of 15,400. South Africa closes the top three. The national currency value, taking into account purchasing power, is 1.8 times stronger than the displayed rate, at 10.4 rand per dollar.

Furthermore, experts have highlighted that the Indian rupee, Chinese yuan, Turkish lira, South Korean won, and Japanese yen are also significantly undervalued.

Financial analyst Mikhail Belyaev had previously claimed that today's most reliable currency is the yuan. The economist explained that the reliability of any currency depends on the overall state of the economy it represents.

A Closer Look at the G20 Currency Landscape

The G20, or Group of Twenty, comprises 19 countries and the European Union, representing the world's largest economies. The group meets periodically to discuss and promote international financial stability. Given the significant influence these countries have on the global economy, shifts in their currency valuations can have ripple effects worldwide.

The study based on the cost of a combo meal is reminiscent of the 'Big Mac Index,' introduced by The Economist in 1986. The Big Mac Index offers a lighthearted measure of currency valuation based on the cost of a Big Mac burger in various countries. The idea is to measure the purchasing power parity between two currencies by comparing the price of an identical basket of goods (in this case, a burger) in any two countries.

However, while such indices provide a general idea about currency valuation, they are simplistic and do not consider many other economic variables and factors influencing exchange rates. Still, the vast difference between the actual and PPP-adjusted rates for currencies like the ruble and rupiah does indicate significant economic disparities.

The data showing the ruble as the most undervalued currency among the G20 nations, especially in comparison with the US dollar, might raise eyebrows in some circles. This undervaluation might be attributed to a combination of factors, including sanctions against Russia, global economic dynamics, and internal financial policies.

The Indonesian rupiah's undervaluation can be partly attributed to Indonesia's economic challenges, including a large current account deficit and dependency on foreign investments.

In South Africa, the rand's valuation is impacted by various factors, including political instability, labor market challenges, and electricity supply concerns.

On the other hand, the strength and stability of the Chinese yuan, as mentioned by Mikhail Belyaev, reflect China's growing influence on the global stage and its burgeoning economy.

What Lies Ahead for the G20 Currencies?

The dynamics of global economies are continually changing, and so are the values of their currencies. Factors such as geopolitical events, trade relationships, internal policies, and global economic shifts play a role in shaping currency valuations.

For countries with undervalued currencies, addressing economic challenges and creating a favorable environment for foreign investments can be pathways to stabilize and strengthen their national currencies.

The G20, as a collective body, has an influential role in steering global financial policies. The decisions taken by this group, coupled with individual country policies, will shape the trajectory of these currencies in the future.

While it remains to be seen how the currency landscape evolves, one thing is certain: in an interconnected global economy, the ripple effects of one country's economic decisions can impact others, making international cooperation more critical than ever.