Why does your money have a different value in each country? The answer is PPP.

Have you ever noticed that a coffee that costs $5 in NYC costs $1 in Mexico? That's not matching, it's the Purchasing Power Parity (PPP).

The basic idea

The PPP compares what you can buy with the same amount of money in different countries. Economists use a “shopping basket” (food, clothing, housing) to understand the true strength of each currency, not just its official exchange rate.

Real example: A Big Mac costs $5 in the USA but $3 in India. That says a lot about the real relationship between dollars and rupees.

Why does it matter?

• Compare GDP: India appears poor if you only look at nominal numbers, but when adjusted for PPP, its purchasing power is much greater.
• Standard of living: $50,000 a year allows you to live well in one place, but barely survive in another.
• Detect manipulation: Governments sometimes artificially inflate their currencies. PPP exposes it.

Where crypto comes in

In countries with weak currencies (high PPP gap), Bitcoin and stablecoins are lifelines. People in Venezuela or Argentina exchange pesos for USDC to protect their purchasing power while inflation destroys their local money.

The PPP explains why crypto is so important in emerging markets: when your central bank prints uncontrollably, a digital currency pegged to dollars becomes your best defense.

The limitations

• Not all products are comparable (quality varies)
• Some services cannot be “exported” (house rental, hairdressing)
• Data ages quickly with inflation

Bottom line: PPP is not perfect, but it is your best compass to understand why things cost what they do in the real world.