Perfect currency in imperfect world

AS CURRENCY markets go ballistic, Norman Lamont might chew over Big Mac-onomics for guidance on how far to defend the pound, writes Topaz Amoore.

The McDonald's Big Mac hamburger is the perfect universal currency because exactly the same product is served up worldwide. In an economically perfect world, the price of a Big Mac in Moscow should be the same, converted into sterling, as in London - pounds 1.64. In reality other factors such as rent, wages and raw material costs intervene.

In a further distortion, a Big Mac in Russia costs pounds 26.92 at the rouble's official exchange rate, but only 9p at the market rate.

But purchasing power parity, as economists term the Big Mac comparison, is a good measure of currencies' long-term value.

All member countries of the exchange rate mechanism are fairly close in the Big Mac league, ranging from pounds 1.61 in Germany to pounds 2.26 in Portugal.