The Economist magazine recently published their lighthearted look at world currencies with the 2008 Big Mac Index. World currencies are measured against the cost of a single Big Mac from McDonald's fast food restaurants in each country. Ideally there would be a wide range of products used to measure the value of a currency, but that wouldn't be nearly as interesting as using just a Big Mac.

They look at currencies and how fairly valued they are compared to the currency of other countries. The theory of purchasing-power parity (PPP) states that a box of goods should cost similar amounts in different countries because of exchange rates. Purchasing power parity measures the purchasing power of world currencies, using a base currency to measure the price of a product in different countries.

So the Economist magazine has McDonald-ized PPP by using a single Big Mac to measure the value of currencies around the world. The annual hamburger event that started back in 1986 by the Economist has been labeled "burgernomics" by some. It is meant to be humorous, but there can also be a lot of truth in humor.

According to the Economist's study, the Euro is overvalued by 50% while the Chinese Yuan is undervalued by 49%. Generally the currencies of Asia are cheap, while those of Europe are expensive. A Big Mac that costs $3.57 in the United States will cost $5.34 in the Euro area, $4.57 in Britain, $6.37 in Sweden, and a whopping $7.88 in Norway. That same $3.57 Big Mac will cost just $1.83 in China, $2.62 in Japan, $2.04 in Indonesia, and as little as $1.70 in Malaysia.

The humble McDonald's hamburger can be bought in roughly 120 countries throughout the world, so it is a product that is widely available. Cultural differences and countries at different stages of development are just two factors that make the Big Mac Index an unfair measure, but the annual look at exchange rates was never meant to be taken too seriously.

The 2008 Big Mac Index below was compiled by the Economist magazine.






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