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The Colombian peso is devalued 32.4% against the dollar, according to the Big Mac index

There are several ways to measure how a country’s economy is doing. Among these is the analysis of the movement of the currencies of each Nation, compared, especially, with the dollar. Although the exchange rate provides an idea of ​​its strength or weakness, since 1986, the renowned magazine The Economist has carried out the so-called Big Mac index, which provides an idea of ​​how devalued a currency is based on its price. of the Mc Donald’s hamburger in US dollars.

As explained by the media, these accounts are based on the purchasing power parity (PPP) theory, with the main idea that, in the long term, exchange rates should move towards the equality of the prices of an identical basket of goods. and services in two scattered regions.

The most recent listing showed that, against the North American currency, the only currencies that are revalued are the Swiss franc, with a strength of 30.3%, segudi or the Norwegian krone, with 21.6%; the Uruguayan peso, with 18.1%; the Swedish krona, with 8.5% and the Canadian dollar, with 2%.

When the ranking is analyzed, the economy with the most devalued currency is Venezuela. There, a Big Mac costs 10 bolívares, compared to the US$5.15 that food costs in the United States. In practice, the change is 1.94 bolívares; however, when compared to the official rate, it reaches 5.67 bolívares, reflecting a loss of value of 65.8%.

In this list, the Latin American countries with strong setbacks stand out. In the region, the currency with the lowest purchasing power is the Guatemalan quetzal, with a negative difference of 34.7%, followed by the Mexican peso, with -33.4%; the Colombian peso, with -32.4%; the Peruvian sol, with 30.7%; the lempira of Honduras, with -29.8%; the Chilean peso, with -28.9% and the Nicaraguan córdobas, with -24.8%.

Additionally, other currencies that have a purchasing power close to the dollar are the Lebanese pound, with a devaluation of only 1.4%, followed by the Israeli shekel, which lost 4% against the US dollar; the United Arab Emirates dirham, with -4.8% and the euro, with -7.5%.

These figures give an account of an international scenario that foresees a recession, or at least a sharp slowdown in the economy in the face of spurting inflation and that the central banks seek to stop.

In fact, in Latin America the panorama is not very different from what has been projected by the Federal Reserve and the European Central Bank in terms of monetary policy. While the Fed has raised this rate by 150 basis points to 1.75% so far this year and in Europe it has reached 0.50%, the main economies in the region have decided to tighten their intervention by an average of 400 bp .

According to Julio Romero, chief economist at Corficolombiana, “in the event of a global recession, this will be felt in lower demand for export products, a drop in remittances and investment amounts, in addition to higher exchange rates. ”.

The expert added that there will be an upward variation of financial variables such as long-term interest rates, pressures on the exchange rate and a loss of employment that will affect the production of each country.

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