# What is a better way to state currency conversion? **URL:** \ **Category:** Factual Questions\ **Created:** [August 9, 2015, 1:48am UTC](https://boards.straightdope.com/t/what-is-a-better-way-to-state-currency-conversion/727352 "2015-08-09T01:48:39Z")\ **Posts on this page:** 9\ **Page:** 2
**Author:** ![clairobscur](https://avatars.discourse-cdn.com/v4/letter/c/839c29/32.png) [@clairobscur](https://boards.straightdope.com/u/clairobscur)\ **Post date:** [August 10, 2015, 9:04am UTC](https://boards.straightdope.com/t/what-is-a-better-way-to-state-currency-conversion/727352/21 "2015-08-10T09:04:48Z")
> [@Hari\_Seldon](#): > > Many countries experienced a lot more inflation, especially during war times. France divided its currency by 100 in, I think, 1960. The war had left it as about Fr500/ and that changed to Fr5/. Even four years later in 1964 many French would insist on stating prices in old francs. I recall one gas station asking Fr5000 for a tank of gas. > . 4 years later? Raised by my grandmother in the countryside, “old francs” were still used by mostly everybody 15 years later. Weirdly, people (including myself, who was born _after_ this change) tended to use old francs for larger amounts for longer. So, say in 1985, someone would tell you that his rent was 2000 francs, but his car was costing 4 millions francs. The larger the amount, the more likely people were to revert to old francs. My elderly mother still often converts euros into old francs for things like the price of a house, 50 years later. ---
**Author:** ![clairobscur](https://avatars.discourse-cdn.com/v4/letter/c/839c29/32.png) [@clairobscur](https://boards.straightdope.com/u/clairobscur)\ **Post date:** [August 10, 2015, 9:16am UTC](https://boards.straightdope.com/t/what-is-a-better-way-to-state-currency-conversion/727352/22 "2015-08-10T09:16:16Z")
> [@Senegoid](#): > > On the question of “purchasing power”, I always wonder about news articles one reads from time to time about impoverished countries, with some statistic like “The median income in Gomboolistan is four dollars per month” or “The average income for non-government workers in Inner Slobbovia is five hundred dollars per year”. Note, the figures are always stated in dollars. Maybe that’s supposed to help us innumerate Americans “relate” to the number. > > But how does one survive on such scanty income as that? Obviously, the purchasing power of that many dollars (equivalent in their own currencies, of course) must be very different than what we are accustomed to. Obviously, the cost of living is much lower. But also, people spend a lot less. If you’re building a shack illegally on some piece of land you don’t own, without water or power (or with water and power also illegally diverted to your place), you’re not paying anything to house yourself. Also, production of subsistence farming isn’t included in GDP. I don’t know if it’s included in these income figures. If you produce yourself most of what you eat and sell the rest for 50 cents a day, I don’t know if a NGO will include you in the people making less than $1/day, for instance. These figures are published in dollar over here to. It being the international currency, all these statistics are calculated in dollars. The local newspaper might convert them into euros, but quite often they don’t, or write something like : “x millions people live on 1 dollar (0.93 euro)/day or less”. ---
**Author:** ![clairobscur](https://avatars.discourse-cdn.com/v4/letter/c/839c29/32.png) [@clairobscur](https://boards.straightdope.com/u/clairobscur)\ **Post date:** [August 10, 2015, 9:25am UTC](https://boards.straightdope.com/t/what-is-a-better-way-to-state-currency-conversion/727352/23 "2015-08-10T09:25:26Z")
> [@Hellestal](#): > > That “$2 a day” is an attempt to compensate for local purchasing power. You can think about US prices. For example, you can order in the US a 20 pound bag of rice for nine bucks, for a total of 32,320 calories. You can get an 8 pound bag of beans for seven bucks, for another 9,360 calories. That’s 41,680 calories total for sixteen dollars. Assuming 2,000 calories per day (which is an optimistic diet), that’s 20 days worth of food. Beans and rice both, complete protein. They will eat other things, but obviously total variety will be less. And this is obviously not a perfect conversion, but 20 days worth of work at two dollars a day is 40 dollars of income, which is enough to pay for that food. Recently, for some time, I spent only € 15/week on groceries (already done this kind of drastic expense cutting in the past). That’s about €2/day, and included things like soap or razor blades. And the food was quite diverse (including fish, organ meat, eggs, milk, some vegetables and fruits…I could even afford some “luxuries” like desserts). Obviously, living only on rice would be much cheaper. That’s in France. People who never tried to live on a very small budget tend to overestimate how much money you really need. You can easily pick a bag of chips that will cost you more than several meals of basic stapples, so when you look up how much you spend while not buying anything extravagant, you’ve a tendancy to assume you couldn’t live on much less. Even in western countries, you can feed yourself on such a low amount. ---
**Author:** ![MandaJo](https://avatars.discourse-cdn.com/v4/letter/m/ac91a4/32.png) [@MandaJo](https://boards.straightdope.com/u/MandaJo)\ **Post date:** [August 10, 2015, 10:25am UTC](https://boards.straightdope.com/t/what-is-a-better-way-to-state-currency-conversion/727352/24 "2015-08-10T10:25:54Z")
One thing I’ve found helpful is to avoid words like “convert” or “change”–it leave the impression that you magically change one physical bill into another physical bill. Much better to say “buy” or “sell” and “cost”. So you say “it costs you a dollar to buy 2 euros, which means it costs 2 euros to buy a dollar”. (I usually also point out first that it works the same at McDonalds–it costs you a dollar to buy 2 apple pies, but it costs them 2 apple pies to buy a dollar). ---
**Author:** ![Peremensoe](https://avatars.discourse-cdn.com/v4/letter/p/ce7236/32.png) [@Peremensoe](https://boards.straightdope.com/u/Peremensoe)\ **Post date:** [August 10, 2015, 11:58am UTC](https://boards.straightdope.com/t/what-is-a-better-way-to-state-currency-conversion/727352/25 "2015-08-10T11:58:31Z")
> [@MandaJo](#): > > One thing I’ve found helpful is to avoid words like “convert” or “change”–it leave the impression that you magically change one physical bill into another physical bill. Much better to say “buy” or “sell” and “cost”. What’s the difference? What is “buying” and “selling,” if not “magically” changing money into goods and services, or the reverse? ---
**Author:** ![MandaJo](https://avatars.discourse-cdn.com/v4/letter/m/ac91a4/32.png) [@MandaJo](https://boards.straightdope.com/u/MandaJo)\ **Post date:** [August 10, 2015, 12:55pm UTC](https://boards.straightdope.com/t/what-is-a-better-way-to-state-currency-conversion/727352/26 "2015-08-10T12:55:25Z")
> [@Peremensoe](#): > > What’s the difference? What is “buying” and “selling,” if not “magically” changing money into goods and services, or the reverse? The difference is that if you can switch perspectives back and forth the process makes more sense and seems less arbitrary. I bought euros/he bought dollars. If you think of it as just a magical transformation, with the dollars you spent being destroyed, it’s really hard to grok currency fluctuations–a dollar used to buy me 2 euros, so two euros worth of stuff. Now it buys me three euros, and more stuff. It’s more valuable. He used to spend two euros to get a dollar’s worth of stuff. Now he spends three euros to buy the same dollar, to buy the same dollar’s worth of stuff. American stuff costs him more, his euro is less valuable. It’s also crucial to understand this to get the foreign exchange market. ---
**Author:** ![bump](https://avatars.discourse-cdn.com/v4/letter/b/7c8e57/32.png) [@bump](https://boards.straightdope.com/u/bump)\ **Post date:** [August 10, 2015, 1:23pm UTC](https://boards.straightdope.com/t/what-is-a-better-way-to-state-currency-conversion/727352/27 "2015-08-10T13:23:04Z")
> [@thelurkinghorror](#): > > [The Big Mac index](https://en.wikipedia.org/wiki/Big_Mac_Index) relates it in easily understandable terms. Yep, that’s the first thing I thought of when I read the OP. To add a little TL;DR meat to the post, the Big Mac Index is something that “The Economist” magazine uses to compare purchasing power parity between most nations, using something that’s identical and comparable in those nations- the Big Mac sandwich as sold by McDonald’s. So for example, this month, a Big Mac in the US costs $4.79. Apparently the US Dollar is extremely valuable at the moment, because only Switzerland and Norway have Big Macs that cost more than 110% of the US price. By comparison, a Big Mac in Mexico costs 49 pesos, which is roughly $3.11. So things are cheaper in Mexico, something like 35% less, as the exchange rate is $15.74 : 1 USD, and the price would imply an exchange rate of $10.23 : 1 USD. > **[Our Big Mac index shows how burger prices differ across borders](https://www.economist.com/big-mac-index)** > > Using patty-power parity to think about exchange rates ---
**Author:** ![Hellestal](https://avatars.discourse-cdn.com/v4/letter/h/3ab097/32.png) [@Hellestal](https://boards.straightdope.com/u/Hellestal)\ **Post date:** [August 10, 2015, 6:36pm UTC](https://boards.straightdope.com/t/what-is-a-better-way-to-state-currency-conversion/727352/28 "2015-08-10T18:36:55Z")
> [@Peremensoe](#): > > What’s the difference? What is “buying” and “selling,” if not “magically” changing money into goods and services, or the reverse? To repeat what **Manda JO** has already said with different wording: students normally approach the acquisition/exchange of money as a magical process. Money is just something that “shows up” or “disappears” according to the hidden rules of the universe. It takes genuine effort for them to consider the actual market system that underlies exchange. Take the example of video games. If you ever play a game, “money” is always a magical process. There are certain actions that you can take in the game that will increase the money number stored in memory (e.g. killing monsters) and there are other actions that will decrease the number (e.g. buying equipment and upgrades from virtual shops). But there’s no money market involved. Money is merely a pre-programmed – read: magical – algorithm that exists as a part of the obscure physics of that game universe. And players just go with that. They don’t question it, don’t dig into it. Some of the MMORPGs, like Eve Online, have fairly sophisticated economies and internal markets, but even those markets don’t extend to the money supply itself. Those online games still have sources and sinks for currency where money can suddenly appear out of nowhere or disappear entirely from the system. Game developers tweak the currency sources and sinks “magically” (with game updates) to maintain the desired price level.\* But how many players notice the underlying mechanics of money, and the lack of a genuine currency market? Very few. This sort of confusion doesn’t just show up in currency. It applies to other financial markets like stocks. You might hear people say, “Money is moving into stocks!” Knowledgeable people might understand that sentence as a metaphor for trade volume, but at least some people are inclined to think that the stock market is literally sucking in money from around the world and then sitting on the cash. They’re not aware that it’s just a transaction: for every person buying a stock, there’s another person selling a stock. The money isn’t literally “going into stocks”, it’s just that the previously existing stock is now being sold at a higher price than it was before. Again, this stuff isn’t obvious to students who’ve never thought about it before. They approach it like a video game, not like a market. They don’t see the underlying system. That’s why talking about buying and selling, and then reversing the perspective so that they consider both sides of the transaction, can clear things up. It replaces the magical arbitrariness of video-game thinking with genuine market-based thinking. \*Real-world money also appears and disappears with the push of the button, but it’s specifically the banking system that accomplishes this task. In a game, buying a +3 sword from the village smith will destroy money and a genuine banking system is not likely to exist. ---
**Author:** ![markn\_1](https://avatars.discourse-cdn.com/v4/letter/m/f9ae1b/32.png) [@markn\_1](https://boards.straightdope.com/u/markn_1)\ **Post date:** [August 10, 2015, 7:02pm UTC](https://boards.straightdope.com/t/what-is-a-better-way-to-state-currency-conversion/727352/29 "2015-08-10T19:02:16Z")
In _A Connecticut Yankee in King Arthur’s Court_, Mark Twain writes about this type of innumeracy. Here’s part of a conversation between the narrator and a smith named Dowley about monetary values in two countries: > [@](#): > > [Dowley said] “In your country, brother, what is the wage of a master bailiff, master hind, carter, shepherd, swineherd?” > > “Twenty-five milrays a day; that is to say, a quarter of a cent.” > > The smith’s face beamed with joy. He said: > > “With us they are allowed the double of it! And what may a mechanic get—carpenter, dauber, mason, painter, blacksmith, wheelwright, and the like?” > > “On the average, fifty milrays; half a cent a day.” > > “Ho-ho! With us they are allowed a hundred!” > … > Here is the way I started in on him. I asked: > > “What do you pay a pound for salt?” > > “A hundred milrays.” > > “We pay forty. What do you pay for beef and mutton—when you buy it?” That was a neat hit; it made the color come. > > “It varieth somewhat, but not much; one may say seventy-five milrays the pound.” > > "We pay thirty-three. > … > I prepared now to sock it to him. I said: "Look here, dear friend, what’s become of your high wages you were bragging so about a few minutes ago? " > > “Marry, I seem not to understand. It is proved that our wages be double thine.” > … > “Why, look here, brother Dowley, don’t you see? Your wages are merely higher than ours in name , not in fact .” > > “Hear him! They are the double—ye have confessed it yourself.” > > “Yes-yes, I don’t deny that at all. But that’s got nothing to do with it; the amount of the wages in mere coins, with meaningless names attached to them to know them by, has got nothing to do with it. The thing is, how much can you buy with your wages?—that’s the idea. While it is true that with you a good mechanic is allowed about three dollars and a half a year, and with us only about a dollar and seventy-five—” > > “There—ye’re confessing it again, ye’re confessing it again!” > > “Confound it, I’ve never denied it, I tell you! What I say is this. With us half a dollar buys more than a dollar buys with you—and therefore it stands to reason and the commonest kind of common-sense, that our wages are higher than yours.” > > He looked dazed, and said, despairingly: > > “Verily, I cannot make it out. Ye’ve just said ours are the higher, and with the same breath ye take it back.” –Mark [Previous page](https://boards.straightdope.com/t/what-is-a-better-way-to-state-currency-conversion/727352.md?page=1)