Who Has Cheapest Big Macs? Fri Apr 25, 9:11 AM ET Add Oddly Enough – Reuters to My Yahoo!
BEIJING (Reuters) – Critics who charge that China’s exchange rate policy gives it an unfair edge in selling its goods abroad have some statistical sauce to beef up their argument: the McDonald’s Big Mac.
In its latest “Big Mac index,” the Economist found that a Big Mac in China is now cheaper than anywhere else surveyed, replacing Argentina, which offered the cheapest burger in January.
The survey found that the average price of a Big Mac was $2.71 in four U.S. cities and just $1.20 in China, implying that the yuan was undervalued by 56 percent against the dollar.
“In other words, the yuan is the most undervalued currency,” The Economist said.
The index is a rough-and-ready measure of a concept that economists call purchasing-power parity, valuing currencies according to what they will buy at home, rather than in international exchange.
The yuan is pegged to the U.S. currency, moving in a very slim band around 8.28 to the dollar. It cannot be exchanged freely for foreign currencies, but can be for sandwiches.
Many economists argue the yuan is undervalued, saying China’s booming exports and high-revving economy would have caused the currency to appreciate if it traded freely against the dollar.
In recent months, officials from Japan, South Korea (news – web sites) and the United States have complained about the yuan’s dollar peg and said China should revalue its currency to reflect its underlying strength.
The Economist said that according to the Big Mac index the yuan exchange rate should be around 3.65 to the dollar.
“China will come under increasing pressure to revalue the yuan,” the magazine forecast.
In terms of Big Macs, the Swiss franc was the most overvalued currency, with the burger costing a whopping $4.52.
Big Macs were 10 percent dearer in areas using the euro than in the United States.