Economia big mac index
The dollar still buys a lot of burger in the rest of Asia too.The Singapore dollar is undervalued by 18% and the South Korean won by 12%. The currencies of less well-off Asian countries, such as Indonesia, Malaysia and Thailand, look even cheaper. China’scurrency is among the most undervalued, though a bit less so than a year ago.
The angrier type of China-basher might conclude that the yuan should revalue so that it is much closer to its burgerstandard. But care needs to be taken when drawing hard conclusions from fast-food prices. PPP measures show where currencies should end up in the long run. Prices vary with local costs, such as rents andwages, which are lower in poor countries, as well as with the price of ingredients that trade across borders. For this reason, PPP is a more reliable comparison for the currencies of economies withsimilar levels of income.
For all these caveats, more sophisticated analyses come to broadly similar conclusions to our own. John Lipsky, number two at the IMF, said this week that the euro is above thefund’s medium-term valuation benchmark. China’s currency is “substantially undervalued” in the IMF’s view. The dollar is sandwiched in between. The big drop in the greenback’s value since 2002 hasleft it “close to its medium-term equilibrium level,” said Mr Lipsky.
If that judgment is right, the squalls stirred up by the credit crises have moved at least one currency—the world’s reserve...
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