Wednesday, July 11, 2007

2007 Big Mac Index: Burgernomics

For 20 years The Economist magazine has published its "Big Mac Index." Since Big Macs are sold in about 120 countries, they can be used as a yardstick to compare currency values (see chart above, click to enlarge).

According to the 2007 Big Mac Index, the world's most undervalued currency (vs. the dollar) is China's yuan, where a Big Mac sells for the equivalent of only $1.45 (vs. $3.41 in the U.S.). On the other hand, Norway's krone is the world's most overvalued currency - a Big Mac in Oslo will set you back almost $7, more than twice the U.S. price. For 2007, there are 33 currencies like the Chinese yuan that are undervalued, and 13 currencies like the Norwegian kroner that are overvalued.

The Big Mac index has its limits. Burgers can't be traded across borders to arbitrage price differentials, and McDonald's doesn't even sell beef burgers in some countries like India.

2 Comments:

At 7/11/2007 9:37 AM, Blogger juandos said...

Is it just me or do most of the countries that show strength against the dollar in the graphic are highly taxed, socialized countries?

 
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