Wednesday, June 15, 2005
The new Big Mac Index and India
The Economist's Big Mac Index is an easy (even if overly simplistic) way to find out which currencies are under-valued and which are over-valued, depending on the cost of a McDonalds burger in the country. The latest version of the Big Mac Index is now available. Not much difference from the last time around. The Renminbi is the most undervalued currency in the world and the Swiss CHF is the most overvalued. I don't know how much longer the former will remain undervalued, given that the Chinese government has begun seriously considering letting the Yuan float within a limited band.
It's a pity the Economist does not include the Indian Rupee on the Index. However, since we at ZS believe in regular contributions to the human knowledge pool, I have worked this out for you, dear reader. If we assume that a Big Mac costs Rs 55 in India ($1.26 at an exchange rate of 43.5), then we find the Indian rupee is undervalued by the exact same amount as the RMB Yuan -- 59 per cent. This means that you need to add the INR to the RMB stash you're already hoarding, to cash out at a later date. If anyone has newer numbers on the price of a Big Mac in India, please let me know so I can make the updates accordingly.
It's a pity the Economist does not include the Indian Rupee on the Index. However, since we at ZS believe in regular contributions to the human knowledge pool, I have worked this out for you, dear reader. If we assume that a Big Mac costs Rs 55 in India ($1.26 at an exchange rate of 43.5), then we find the Indian rupee is undervalued by the exact same amount as the RMB Yuan -- 59 per cent. This means that you need to add the INR to the RMB stash you're already hoarding, to cash out at a later date. If anyone has newer numbers on the price of a Big Mac in India, please let me know so I can make the updates accordingly.
