Föhrenbergkreis Finanzwirtschaft

Unkonventionelle Lösungen für eine zukunftsfähige Gesellschaft

Currency account: the Big Mac index

Posted by hkarner - 13. Juli 2017

Date: 13-07-2017
Source: The Economist

Today The Economist releases its annual index based on purchasing-power parity, with the idea that currencies should converge such that the same amount of money, at market exchange rates, should buy the same amount of Big Mac anywhere.

Alas, not so. The Egyptian pound, which was floated in November, is by our meaty calculations the cheapest major currency, undervalued by 67% against the dollar (in cheeseburger terms). The Mexican peso turned soggy after the American election, on fears of a trade war, but in the past six months has crisped up again—from 56% to 48% undervalued against the dollar.

Similarly, the euro, once rattled by fears of a populist insurgency, is undervalued by 16% against the greenback, up from 20%. Some currencies, though, still appear dear: the Swiss franc, for example, is overvalued by 27%. American tourists interested in Alpine picnicking are advised to bring their own burgers.

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