Big Mac Index: Indian Rupee Most Undervalued Currency In The World

The Big Mac Index uses Purchasing Power Parity (PPP) in comparing the price of the ubiquitous Big Mac across countries relative to its price in the USA. PPP refers to the idea that exchange rates across two countries should be equal to the relative price of a basket of goods and services in both countries. Thus the price of a Big Mac, a good that is (somewhat) identical across countries, would be an effective barometer of what exchange rates between countries should look like.

According to the index, the Indian Rupee is undervalued (relative to the US dollar) by nearly 62%, and along with South Africa, is one of the two major world economies that is undervalued at over 50%. China‘s yuan, historically kept its currency low to maintain a positive trade balance with the US, is seen to be undervalued by approximately 41%.

An interesting point to note is that Japan‘s currency is seen to have been sharply losing value relative to the dollar, despite quantitative easing in the US aiming to push down the value of the dollar. This certainly puts into question newly-elected Prime Minister Shinzo Abe’s claim that the Japanese Yen needs to be further devalued in order to make exports viable again.

The index is not intended to be a perfect measure of “ideal” exchange rates, but a simple and fun rule of thumb. In India for example, the Maharaja Mac is made of chicken, not beef, due to cultural factors. A difference in dining cultures also plays a part in the pricing of the Big Mac; in several emerging markets, eating at McDonald’s is seen as a pastime afforded only to the middle class, whereas in the US, McDonald’s is viewed as a cheap, “lower class” option.