Big Mac Index Shows Currency Gaps
The "Big Mac" Index is a simple tool that measures the purchasing power of currencies by comparing the prices of a "Big Mac" sandwich in different countries. It is used to assess the true valuation of currencies relative to market prices. After 40 years since its launch in 1986, the index has shown that the Chinese yuan is undervalued by about 16%, reflecting a weakness in its exchange rate compared to its actual purchasing power. This weakness gives China a competitive advantage in international trade. The results of the index generate global discussions about currency balances and their impact on world trade, offering a simple alternative to more complex and slow-moving measures of purchasing power parity.
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