## Monday, August 27, 2012

### The McDonald's Exchange rate

It's hard to really gauge the value of money between countries. I don't mean currency exchange. Since they can be traded, they themselves affect the value of things. So using currency exchange to measure the relative value of money doesn't really work and if it does, doesn't hold up all the time.
When I was a student, I came up with the McDonald's Exchange rate. It compares the value of the same item in McDonald's in two countries. I use the beefburger or cheeseburger as a base. If it costs \$1.99 in the US and 1 pound sterling UK, then you get a clearer idea of the value of the money. Since two bucks gets you a burger and one UK pound gets you the same burger, the value of 2 bucks is the same as 1 UK pound.
Snicker all you want, but that burger represent a lot of things, more than the bun and the slice of (what is supposed to be) beef. The price McDonald's put on that burger is a reflection of the cost of production of that burger meat including everything that makes up the supply chain before it, the cost of baking the bun, transportation of the items to the franchise outlet, the salaries of the staff, running the restaurant and every element that makes up everything that happens up to the point you bite into it. Now that price has to represent all that in 2 countries. So I think it is much more representative of the value of money than the exchange rate. You can't sell and buy the burger you bought to increase or decrease it's value.
I think this is much more saner than the system and the idea of valuation that people are using today, especially marketing types in tech companies that sell on-line in many currencies in many countries.

The main sticking point to Europeans is the notion of 1 US dollar is equal to 1 Euro. So we end up with sites that price items as \$5.99 but converting it to Euros the price becomes Euro 5.99. Given today's exchange rate is \$1.25 for 1 Euro, that \$5.99 item now costs \$7.49 which is what Euro 5.99 is. Worse is that most of these companies are American companies, so the simplistic 1 dollar to 1 Euro smack of American-egocentricity. To make matters even worse is that those items sold on-line sometimes could be bought in US dollars and shipped to the European address paid in US dollars for less than what they would have paid in Euros. What does that say about the US dollar. Or worse, currency in general.
Are these systems so simplistic that they could not be modified to calculate based on a modifiable exchange rate? I think it is really not about the American-ness. It's about laziness. Offended? It's a lot better than letting people think these companies want a bigger profit margin because their customers pay in a different currency.
Try the McDonald's burger exchange rate. It doesn't work that well anymore because the variety of the menu items and because of localization of the menu. Strangely, globalization is injuring this idea. But find a simple enough food item and you compare how much is costs in the local currency in two countries. Then you can really appreciate the value of money in two countries.