Posted on 07/23/2024 7:17:02 AM PDT by SeekAndFind
What can a Big Mac tell us about currency rates? As it turns out, quite a lot.
The Big Mac Index, created by The Economist in 1986, started out as a simple tool to make currency theory more digestible. Now, it’s a widely-known measure in popular economics to assess and compare currency valuations.
In short, the Big Mac index compares the purchasing power parity (PPP) of currencies using the price of a Big Mac in the U.S. as the benchmark. It shows how much a Big Mac costs in various countries compared to the U.S., but it also works as a way to assess exchange rates.
In this graphic, Visual Capitalist's Kayla Zhu visualizes the price of a McDonald’s Big Mac in U.S. dollars between 13 different countries around the world, the eurozone, and the United States, using the latest January 2024 data from The Economist’s Big Mac Index dataset.
One can use the price of Big Macs in other countries to see if a currency has more or less purchasing power than expected. This is done by taking the local price of a Big Mac (in local currency) and dividing it by the U.S. price of a Big Mac to calculate an implied exchange rate.
This implied exchange rate is then compared against the actual exchange rate between the two currencies; if the implied rate is higher than the actual rate, the local currency is “overvalued”, and if it is lower, the local currency is “undervalued”.
It’s worth noting that this measure is relatively simplistic and doesn’t account for some factors like taxes, local production costs, and market barriers.
Switzerland has the most expensive Big Macs in the world at $8.17 USD, which is 44% more expensive than the price of a Big Mac in the United States. Using the Big Mac Index, that suggests that the Swiss franc is 44% overvalued against the U.S. dollar.
| Country | Price of Big Mac in USD | Big Mac Index (USD) |
|---|---|---|
| 🇨🇭 Switzerland | $8.17 | 43.53% |
| 🇳🇴 Norway | $7.14 | 25.47% |
| 🇺🇾 Uruguay | $7.04 | 23.72% |
| 🇪🇺 Euro area | $5.87 | 3.12% |
| 🇸🇪 Sweden | $5.87 | 3.08% |
| 🇨🇷 Costa Rica | $5.71 | 0.39% |
| 🇬🇧 Britain | $5.71 | 0.36% |
| 🇩🇰 Denmark | $5.69 | 0.03% |
| 🇺🇸 United States | $5.69 | 0.00% |
| 🇱🇰 Sri Lanka | $5.69 | -0.03% |
| 🇨🇦 Canada | $5.56 | -2.37% |
| 🇲🇽 Mexico | $5.19 | -8.74% |
| 🇨🇴 Colombia | $5.09 | -10.60% |
| 🇦🇺 Australia | $5.07 | -10.82% |
| 🇸🇦 Saudi Arabia | $5.07 | -10.97% |
| 🇳🇿 New Zealand | $5.01 | -12.03% |
| 🇵🇱 Poland | $4.97 | -12.74% |
| 🇸🇬 Singapore | $4.96 | -12.88% |
| 🇻🇪 Venezuela | $4.93 | -13.28% |
| 🇦🇪 United Arab Emirates | $4.90 | -13.87% |
| 🇧🇷 Brazil | $4.81 | -15.48% |
| 🇱🇧 Lebanon | $4.80 | -15.56% |
| 🇨🇿 Czech Republic | $4.61 | -18.97% |
| 🇰🇼 Kuwait | $4.55 | -20.05% |
| 🇮🇱 Israel | $4.52 | -20.63% |
| 🇧🇭 Bahrain | $4.51 | -20.74% |
| 🇨🇱 Chile | $4.46 | -21.68% |
| 🇳🇮 Nicaragua | $4.34 | -23.70% |
| 🇵🇪 Peru | $4.25 | -25.32% |
| 🇭🇳 Honduras | $4.13 | -27.37% |
| 🇰🇷 South Korea | $4.11 | -27.81% |
| 🇭🇺 Hungary | $3.98 | -30.11% |
| 🇹🇷 Turkey | $3.97 | -30.29% |
| 🇶🇦 Qatar | $3.85 | -32.42% |
| 🇦🇷 Argentina | $3.83 | -32.61% |
| 🇵🇰 Pakistan | $3.81 | -33.09% |
| 🇹🇭 Thailand | $3.78 | -33.50% |
| 🇬🇹 Guatemala | $3.71 | -34.78% |
| 🇴🇲 Oman | $3.69 | -35.18% |
| 🇲🇩 Moldova | $3.56 | -37.45% |
| 🇯🇴 Jordan | $3.53 | -38.03% |
| 🇦🇿 Azerbaijan | $3.49 | -38.58% |
| 🇨🇳 China | $3.47 | -38.99% |
| 🇷🇴 Romania | $3.42 | -39.85% |
| 🇯🇵 Japan | $3.04 | -46.51% |
| 🇻🇳 Vietnam | $3.01 | -47.06% |
| 🇭🇰 Hong Kong | $2.94 | -48.30% |
| 🇺🇦 Ukraine | $2.94 | -48.37% |
| 🇵🇭 Philippines | $2.86 | -49.74% |
| 🇲🇾 Malaysia | $2.78 | -51.10% |
| 🇪🇬 Egypt | $2.75 | -51.66% |
| 🇿🇦 South Africa | $2.71 | -52.46% |
| 🇮🇳 India | $2.59 | -54.51% |
| 🇮🇩 Indonesia | $2.43 | -57.29% |
| 🇹🇼 Taiwan | $2.39 | -57.95% |
European countries like Switzerland, Norway, and those in the eurozone tend to have more expensive Big Macs than the United States. This indicates that these European currencies may be overvalued relative to the U.S. dollar.
On the other end of the spectrum, several major East Asian economies, including Taiwan, Japan, China, and South Korea, have currencies substantially undervalued against the U.S. dollar, according to the Big Mac Index.
In April, the Bank of America stated it was not bullish “on any currency in Asia” and mentioned the Chinese yuan, South Korean won, and Taiwan dollar under its bearish category. In June, the Japanese yen hit a 38-year low against the dollar.
I went to Ramstein AB in West Germany in the 1980s. They told us if you see a communist vehicle on the road and report it, you’d get a three-day pass.
So I’m driving on the A6 between Kaiserslautern and Ludwigshafen and I see an old beat-up box with a CH sticker on it. Czechoslovakia, am I right?!!?
I reported it, only to find out it was Switzerland. How do you get CH from Swiss?
Wiki:
***The country code for Switzerland is “CH”, which stands for “Confoederatio Helvetica”, the Latin name for the Swiss Confederation. This abbreviation is used across various contexts, including Swiss domains, license plates, coins, and stamps, as well as in international standards like ISO 3166 and the Olympics.***
What a disappointment! I had already planned out my three days off on the drive back to the Base SPs.
The abbreviation “CH” for Switzerland comes from its Latin name, Confoederatio Helvetica. This translates to “Helvetic Confederation”.
Here’s a breakdown:
Helvetia: This refers to the Helvetii, a Celtic tribe that inhabited the region before the Roman era.
Confoederatio Helvetica: This Latin name was adopted after the formation of the federal state in 1848, and it has remained in use ever since.
So, the “CH” is derived from the first two letters of Confoederatio Helvetica. It’s a historical reference that has become a widely recognized symbol of Switzerland.
Thanks for that.
In 1854, my great, great (great) grandfather literally escaped Switzerland with his life. His brothers were after him in what was deadly religious persecution. It was of all things protestant disagreement.
A few families left Vaud and came to Knoxville Tennessee. The land around Knoxville is very much akin to Vaud. There is a large Swiss community still in the original lands they settled back in the mid 1800’s
It took a hundred years for the cousins in America to reunite with those in Switzerland.
Confederation Helvetica as I recall.
What do they use for “meat” in Taiwan?
It may explain why the price is lower....
I did not know that. Thanks!
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