The difference between this and the actual exchange rate – R14.66 to the dollar at the time of the report – suggests that the rand is undervalued by 59.5%, which is the third most undervalued currency measured by the index in July. The implied exchange rate is R5.93 to the dollar.
Using the raw data, a Big Mac costs R33.50 in South Africa and $5.65 in the United States. The Big Mac Index measures the real value of currencies using two methods – a direct measure of PPP using raw prices, and an adjusted index that takes into account local GDP data. The ‘real’ value of the rand in July 2021 The index has, however, become a global standard, included in several economic textbooks, and is also the subject of at least 20 academic studies, the group noted. The Big Mac is selected for comparison as the popular fast-food meal is widely available, and remains fairly consistent in pricing however, it is by no means an exact measure.Īccording to The Economist, ‘Burgernomics’ was never intended as a precise gauge of currency misalignment, but is merely a tool to make exchange-rate theory more digestible. It is based on the theory of purchasing-power-parity (PPP) – the notion that, in the long run, exchange rates should move towards the rate that would equalise the prices of an identical basket of goods and services (in this case, a Big Mac burger) in any two countries. The Big Mac Index is an initiative created by The Economist that aims to measure whether currencies are priced at their “correct” level. The Economist has updated its Big Mac Index, showing how the rand continues to be one of the most undervalued currencies globally, relative to the US dollar.
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