Why does coffee in Brazil cost differently than in the USA? The answer lies in the Purchasing Power Parity.

Have you ever wondered why the same product costs $10 in New York but only $3 in India? It's not a coincidence, it's purchasing power parity (PPP).

What is this exactly?

The PPA measures how much you can actually buy with your money in different countries. Economists compare a “basket of goods” (food, clothing, housing, energy) to understand the true strength of each currency.

The trick: A Big Mac costs $5 in the U.S. but only $3 in India. This tells you something about the real relationship between the dollar and the rupee, beyond just the numbers of the exchange rate.

Why does it matter?

• Compare salaries: $50,000 a year may be a luxury in one place but misery in another
• Measure real economy: Nominal GDP lies; PPP-adjusted GDP shows the truth
• Predict currencies: Currencies tend to move towards their PPP levels over time
• Detect manipulation: If a government artificially inflates its currency, PA exposes it.

The side of cryptocurrencies

Here comes the interesting part: in countries with weak currencies and rampant inflation, people migrate to Bitcoin, stablecoins, and other crypto. Why? Because they preserve the purchasing power that their local currency destroys.

A dollar-pegged stablecoin is worth more in Argentina or Venezuela than a peso or bolívar that crumbles every month. It's PA in action: people are looking for the best way to store value.

What you need to know

PA is not perfect:

• Local services (hairdressing, electricity) are not traded globally and distort the data.
• Inflation changes the rules every semester
• The quality of the product is not always the same, only the price.

But as a compass to understand the global economy and why people in the Global South are increasingly betting on crypto? It's the best we have.

Moral: The next time you see the price of something in another country, you already know what is really happening behind the scenes.