What’s the Big Mac index?

It’s the index run by The Economist and compares the price of a McDonald’s Big Mac in various countries.

By doing so the newspaper (that’s what it calls itself rather than a magazine) reckons it’s a way of discovering which currencies are overvalued and which are undervalued.

They call it “a gratifyingly simple guide to currency misalignments.”

Here’s how much you would pay for a Big Mac in the following countries in US$:

Switzerland – $6.78
Euro area – $4.79
Japan – $3.91
US – $3.71
Britain – $3.63
South Africa – $2.79
Malaysia – $2.25
China – $2.18

This purportedly shows that China and Malaysia are well undervalued currencies. Conversely, Switzerland and the Euro area are well overvalued.

How far is this true?

And here’s the $64,000 US dollar question.

Can we make any money from it?

Will China revalue the yuan because it’s burgers are too cheap? Unlikely.

But perhaps this index, courtesy of the good people at The Economist, is a essential guide to your next holiday destination.

Especially if you like Big Macs! 🙂