Featured Video: 2013 Big Mac Index
Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.
Twice a year The Economist publishes the Big Mac index. It is a fun guide to the world’s currencies that attempts to adjust them all to an equitable level through the great equaliser known as the Big Mac. Being one of the few prepared food items that can be purchased nearly across the globe, it serves as a great bellwether: Is a country’s currency over-valued?
Twice a year The Economist publishes the Big Mac index. It is a fun guide to the world’s currencies that attempts to adjust them all to an equitable level through the great equaliser known as the Big Mac. Being one of the few prepared food items that can be purchased nearly across the globe, it serves as a great bellwether: Is a country’s currency over-valued?
The Big Mac Index is really based on the theory of purchasing power parity, the notion that global exchange rates should eventually adjust to make the price of identical ‘basket of goods’ equalised in each country.
For example, the average price of a Big Mac in the United States in July 2013 was $4.56; in China, it was only $2.61 at market exchange rates. Based on the Big Mac Index, the yuan can then be said to be undervalued by over 40 percent.
Related: China Likely To Float Yuan In Five Years
Related: Is the RMB Displacing the USD in Asia?: Michael Pettis
Related: G-7 Nations Pledge To Avoid Currency War
Even though The Economist admits that the so-called Burgernomics was never intended as a precise gauge of currency valuation, the concept has certainly caught on and has been included in several economic textbooks and the subject of at least 20 academic studies.
Foreign exchange specialists Travelex like that the index simplifies the scary and confusing world of global currencies, and hope that it might just inspire you to take that next step in visiting a faraway place. To show their love for The Economist’s Big Mac index, they’ve created this video, “The Big Mac Index Explained”.
Related: Capital Controls & Currency Wars: Will The G-20 Get It Right?
Related: The Return Of Fixed Exchange Rates: A Costly Response To ‘Currency Wars’?
Related Infographic: Are We Moving Closer to a Global Currency?
