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The Swiss Franc is the most overvalued currency in the world, and the Indian Rupee most undervalued

That’s what the Economist’s Big Mac Index tells us. According to this index, the Swiss Franc and the Norwegian Krone are both more than 60 percent overvalued compared to the US dollar. Much further down are Sweden with over 40% overvaluation and Brazil which shows more than 30%.

The flip side comes with the Indian Rupee, which had been hitting record lows last year. Here, we’re talking about a 60% undervaluation. Ukraine, Hong Kong and Malaysia come close at over 40% undervaluation. If you wondering China’s Yuan is the 5th most undervalued currency using this statistic, also more than 40% undervalued vis-a-vis the US dollar.

Note, of the 10 most undervalued currencies, 8 are Asian. In the overvaluation department, South America andEurope rule the roost with 4 currencies in Europe and 4 in South America amongst the ten national currencies showing the most extreme levels of overvaluation Canada and Australia are the other two.

The chart is below (click to enlarge)

Big Mac Index

Here’s how the Economist puts it:

THE ECONOMIST’s Big Mac index is based on the theory of purchasing-power parity: in the long run, exchange rates should adjust to equal the price of a basket of goods and services in different countries. This particular basket holds a McDonald’s Big Mac, whose price around the world we compared with its American average of $4.20. According to burgernomics the Swiss franc is a meaty 62% overvalued. The exchange rate that would equalise the price of a Swiss Big Mac with an American one is SFr1.55 to the dollar; the actual exchange rate is only 0.96. The cheapest burger is found in India, costing just $1.62. Though because Big Macs are not sold in India, we take the price of a Maharaja Mac, which is made with chicken instead of beef. Nonetheless, our index suggests the rupee is 60% undercooked.

 

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One response

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    02/09/2012 at 11:54 PM

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