One of the most enduring measures of whether exchange rates make economic sense compares the price of the McDonald’s hamburger across countries. Its surprising longevity says something about the limits of financial markets and the enduring relevance of the real economy. Exchange rates are often treated as objective reflections of national economic strength. In reality, they are shaped by a complex interplay of interest rates, capital flows, investor sentiment, geopolitical tensions and central-bank intervention. These forces can keep currencies away from levels that reflect what people can actually buy in their own countries for years, sometimes decades.

When that disconnect becomes persistent, it is more than a statistical curiosity. It becomes an economic distortion. Currencies that remain significantly undervalued make exports artificially competitive and encourage trade surpluses. Overvalued currencies, meanwhile, erode industrial competitiveness and widen trade deficits. The consequences extend beyond commerce. They influence investment decisions, manufacturing employment, inflation, debt burdens and even political stability. Many of the trade disputes that have defined........

© The Statesman