Every month, in London and Houston and Toronto and Dubai, the same small ceremony repeats. Someone opens a phone, checks a number, and decides whether today is the day to send money home. The number...
Every month, in London and Houston and Toronto and Dubai, the same small ceremony repeats. Someone opens a phone, checks a number, and decides whether today is the day to send money home. The number is an exchange rate, and for a diaspora family it is not an abstraction from the business pages. It is the difference between school fees covered and school fees short. A family sending five hundred dollars a month home watches a five percent move in the rate turn into three hundred dollars a year, appearing or vanishing without anyone working an extra hour. That is why we say exchange-rate literacy is a second salary: not because a family can outsmart the currency market, but because a family that understands what moves the rate stops donating money to its own confusion.
The strange and wonderful thing is that one of the best teachers of that literacy is a hamburger.
In 1986, a journalist at The Economist in London wondered what the world's currencies would be worth if a Big Mac cost the same everywhere. The idea became the Big Mac Index, and it has been published ever since. "The Big Mac Index was an amusing way to make economics more fun," says Pam Woodall, the economics writer who invented it, quoted in the book this wave of essays is reading, The WSJ Guide to the 50 Economic Indicators That Really Matter, by Simon Constable and Robert E. Wright (Harper Business, 2011). "People loved it and we kept doing it year after year." The book devotes a full chapter to the burger, and two more chapters, on the current account deficit and on cross-border capital flows, complete the picture. Together they amount to a short course in the question every remitting family quietly carries: what is my money actually worth on the other side, and which way is that worth moving?
Behind the joke, the book explains, sits respectable theory: purchasing power parity, the idea that "if international trade is unfettered, then goods and services in all countries should eventually cost approximately the same amount." If the same basket of things costs 3,700 shillings in one country and one dollar in another, then over the long run the exchange rate should drift toward 3,700 to one. The trouble with testing this is that baskets differ; a loaf in Lagos is not a loaf in Lyon. The Big Mac cuts through the problem because, as the authors put it, the burgers "are (more or less) identical everywhere they are sold," the same recipe, assembled the same way, from Nairobi to New Jersey. No adjusting for quality or size. One standard object, priced in every currency.
The reading is then simple. "To the extent that the actual price of the burger in another country differs from prices in the United States, that country's currency is either overvalued or undervalued." The book's example: "If the same Big Mac costs fifty cents in Beijing but three dollars in New York, then by this indicator's reckoning the Chinese currency is undervalued." When the authors wrote, the 2010 index showed the Chinese yuan as the most undervalued major currency, "possibly by as much as 50%," with the Mexican peso undervalued by over 25 percent. Woodall notes in the book that some people claim the burger beats far more sophisticated models at predicting long-run currency values, and that academic studies have backed its validity.
That is the headline lesson, and for a diaspora family it is genuinely useful: there exists a free, published, decades-long gauge of whether a currency is priced roughly right against the dollar or the pound or the euro. But the book immediately adds a correction, and the correction matters more for our readers than the headline.
Woodall herself supplies the wrinkle. A Big Mac cannot be shipped or stored; the authors report, with a straight face, that one of them tried storing one and "it doesn't end happily." That makes a burger less like a tradable good and more like a service, consumed where it is bought, like a haircut. And services are naturally cheaper in poorer countries because wages are lower there, and wages are most of the cost of a service. The consequence, the book says plainly: "even when currencies are fully valued, the BMI will show that emerging-market currencies are undervalued."
Read that twice, because it is the sentence that protects your family from a bad conclusion. The index will almost always suggest that the shilling, the naira, the cedi, the rand are cheap against the dollar. That does not mean each is a coiled spring about to appreciate. Some of that cheapness is permanent, the honest reflection of lower wages. The book's advice is to use the burger only for extremes: "use this indicator as a guide to whether currencies are egregiously overvalued or undervalued." When a currency is wildly out of line, expect gravity to assert itself, eventually. When it is mildly out of line, the burger is telling you about wages, not destiny.
The book also mentions a companion measure from UBS that asks how many hours a local worker must labor to afford a Big Mac, a quiet gauge of productivity and living standards. For a family weighing a return home, or comparing two countries where relatives might settle, that hours-of-work framing is often more honest than the exchange rate itself: it measures what life costs in the currency everyone actually earns, which is time.
The burger tells you where a currency stands. The book's chapter on the current account deficit tells you where it is being pushed. The current account is, roughly, a country's trade balance: what it earns from the world minus what it spends on the world. A country that persistently spends more than it earns must cover the gap somehow, and the book quotes the economist Paul Wachtel of NYU on how: "We pay for those imports by borrowing money or by selling assets to the rest of the world." The authors sharpen the point with an image every family will recognize: "In some ways this is like selling the family silver to put food on the table. You can do it once, but it's not sustainable."
Then comes the number worth memorizing. Wachtel's rule of thumb: a trade deficit under 5 percent of GDP is livable; above that, danger. "When we look at smaller emerging market countries it's a strong indicator of a looming exchange rate crisis," he says in the book, citing Hungary, which ran a deficit near 10 percent of GDP right before its currency fell hard, and Greece with a similar story. The mechanism is not mysterious. A country importing far more than it exports needs a constant stream of foreign money to pay the difference, and the moment lenders hesitate, the currency drops until the arithmetic balances itself, brutally.
The book's third relevant chapter, on what the US Treasury calls TIC data, watches exactly that hesitation: the month-by-month record of whether foreigners are still willing to lend to America. The same logic scales down to any country your family loves. When foreign lenders and investors are eager, the currency holds and interest rates stay tame. When they pull back, rates rise and the currency slides. The book is honest that this data arrives late, covering flows from six weeks earlier, "like trying to drive while only looking in the rearview mirror." But trend is what you want anyway, and trends survive a six-week delay.
Put the three chapters together and a remitting family has a working model of the currency it depends on. The Big Mac Index says whether the price is roughly sane. The current account says whether the pressure on it points up or down. The flow of foreign money says whether the world is still financing the gap. None of this predicts next Tuesday. All of it predicts the direction of the next few years better than the rumor network does.
Now the honesty the book has earned. It was published in 2011, and its examples have aged: the yuan story played out long ago, the specific valuations it cites are history, and one of its fifty indicators, Libor, has since been retired as a benchmark entirely. It is also written from inside the dollar, treating the United States as the special case whose reserve-currency status lets it break the 5 percent rule for decades. The book even wonders aloud whether that privilege can last: "If you go down the road five or ten years, things might change," Wachtel says of the dollar. More than a decade down that road, the dollar is still the sun that remittance corridors orbit, which is itself a lesson in the humility of forecasts.
But notice what has not aged: every mechanism in those three chapters. Purchasing power parity still anchors currencies in the long run. Persistent trade deficits above Wachtel's threshold still precede currency crises, as several African and emerging economies have relearned painfully since. Foreign capital still flees faster than it arrives. The Economist still publishes the index, updated, free. A 2011 map of a coastline drawn from permanent rocks rather than passing weather remains a good map.
So what does a diaspora family actually do with all this? The book's own risk label is the place to start. Its Big Mac chapter, for all its affection for the burger, rates currency speculation at the top of its scale: risk level, "astronomical." It explicitly warns that novices "would do well to avoid investing directly in the currency markets or trading with borrowed money." We would go further for our readers: a remitting family should never think of itself as trading currency at all. You are not trying to beat the market. You are trying to stop being beaten by it accidentally. That distinction produces three habits.
First, timing within reason. Because a family remits every month, it is already doing what investors call averaging: buying the home currency at many different rates across the year, which smooths luck out of the equation. Keep that. The literate refinement is modest: hold a small flexibility reserve so that when the rate is unusually favorable, by your own one-year view of its trend, you can send a planned lump, school fees, the roof, the land payment, a few weeks early, and when the rate is briefly terrible you can send the minimum and wait. This is not speculation. It is the same sense that leads a family to buy maize after harvest, when it is cheap, rather than in the hungry season.
Second, converting with open eyes. The quoted exchange rate is not the rate your family gets; fees and margins sit between them, and they differ wildly between banks, apps, and agents. A family remitting for decades should know its true all-in cost per transfer the way a shopkeeper knows her margins, and should re-check it yearly, because the corridor that was cheapest in 2020 rarely is today.
Third, holding deliberately. A two-country family holds money on both sides of the border, and the split should be a decision, not an accident. Money needed at home within months belongs at home, in the home currency, where a sudden slide cannot ambush next term's fees. Long-term savings deserve a conversation the family has explicitly: hard-currency savings protect against home-currency depreciation but earn little and sit far from need; home-currency savings and assets, land, the SACCO (a member-owned savings cooperative common across East Africa), the family business, earn more and build the place you love, but carry the currency's risk. Most families should hold some of each, and the right split depends on the dials above: a home currency running a modest current account gap is a different proposition from one running Hungarian numbers.
This is where your Cash Log in LegacyPot earns its keep for a two-currency family: log every transfer with the rate you actually received and the fees you actually paid, and once a quarter read the log the way this wave reads every dial, for trend. Twelve months of your own entries will tell you your true cost of remitting, your average rate, and whether your corridor is getting cheaper or quietly worse, knowledge that no bank will volunteer.
The Big Mac Index began as a joke that turned out to be a teacher. Let it teach your family the posture it recommends: unhurried, skeptical of drama, attentive to what one standard object says about two economies at once. The family that reads the burger, the trade gap, and its own cash log does not need to predict the currency. It needs only to stop being surprised by it, and that alone, year over year, is worth a second salary.