Thursday, October 18, 2007

The Eurotrash Currency Game

“Bond had one million francs of private capital - Old Francs, of course - about seven hundred pounds' worth. He always reckoned his private funds in Old Francs. It made him feel so rich."

"On the other hand, he made out his official expenses in New Francs because that made them look smaller - but probably not to the Chief Accountant at Headquarters!”

Ian Fleming, On Her Majesty’s Secret Service

Once you’ve lived and worked in a different country, it deeply effects the way you perceive and react to things.

I’ve lived and worked in Britain, France and America and lived my life in four different currencies – Pounds, Francs, Euros and Dollars.

Francs were just fun. I loved earning 6,000 francs a month working as an assistant in Saint Valery en Caux – it made me feel so rich, even though that was barely six hundred pounds.

But now I live with roughly interchangeable currencies. Walking into a supermarket in Britain, France or America, you’re presented with items that cost 3.99 (whether that’s $3.99, £3.99 or €3.99)

The disparity between the values can be considerable. After all, a British pound is worth roughly two American dollars. But unless you’re an accountant or carry a calculator, the mindset you approach your shopping with remains pretty much the same. Whatever country I’m in, for example, I think in pounds.

I think I’ve mentioned an example of this when shopping for wine. Going into Rutgers Liquor (my local wine store) I examine the wine on offer and balk at paying $7.99 for a bottle of Little Penguin Shiraz – since in my mind $7.99 seems SO MUCH more than the £4.99 I’d have paid in England for the exact same vino.

In actual fact, the wine turns out to be about a quid cheaper. But it doesn’t SEEM cheaper because I still think in pounds.

I stupidly expect things to cost the same amount of dollars in America as pounds in England. And the ridiculous thing? Generally I’m right.

As in, a week’s shopping in England would cost £70 from Sainsburys. It costs roughly $70 in America for the same amount of stuff.

Filling your car with petrol in England cost £40. Here in America it’s roughly $30. Bargain!

Basic living expenses always appear to my stubborn little brain as costing the same amount in America as they do in England. The great thing is that my salary doesn’t. Things cost the same but my pay is doubled by the delicious exchange rate. As long as I think in pounds, but buy in dollars, I’m always going to be better off this side of the Atlantic.

This disparity is only interesting because it reflects a state of affairs ignored by the ‘exchange rate.’ To a bank, a pound is worth 2.02 dollars. To a spendin’ man like me, however, you’ll always get more for your two dollars then you will for your quid. The exchange rate seems out of whack in comparison to the actual cost of living.

Exactly how out of whack it was? I never thought I’d be able to know – except then I remembered a cunning invention from The Economist magazine. My father had showed me Burgernomics, or what The Economist call: The Big Mac Index.

MacDonald's is such an enormous corporation, they’ve spanned the globe. The amazing this is that they sell the same product – the Big Mac – in dozens of countries. The price discrepancy between these burgers reveals an entirely different exchange rate than that decided by the banks. It actually reflects how much the local currency will buy you, instead of how much the local currency is worth.

Taking my thoughts about the cost of American living under consideration, I examined the Big Mac index and discovered that my theory is supported. While an American dollar is worth roughly half what the pound is according to the banks, the difference in ‘Big Mac’ money is much more modest 20%. That means the doubled dollar wages I earn in America make me 80% richer than I was in the UK.

Time to break out the Miller High Life? (the ‘champagne’ of beers, $3.92 for six)

Maybe not. But it does make me appreciate not only the situation I’m currently in, but also the situation I came from. As long as I keep thinking in pounds, I’m going to be spending thriftily in America and that’s going to be more responsible for making me richer in the long run than any complicated Burger Economics.

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