The Big Mac Index – 2022

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The Big Mac Index was invented by The Economist in 1986 as a lighthearted guide to whether currencies are at their “correct” level.
Although this index was never designed to be a precise gauge of the misalignment of a currency it helps to make exchange rate theory more understandable. It uses the McDonald’s Big Mac burger as a benchmark to determine the Purchasing power parity between nations.

Purchasing power parity (PPP) is an economic theory which states that exchange rates over time should move in the direction of equality across national borders in the price charged for an identical basket of goods. In this case, the basket of goods is a Big Mac.

Economist “The Big Mac Index”

It has become a global standard and included in several economic textbooks and the subject of dozens of academic studies.

Based on “Burgernomics” the South African Rand is currently 54.5% undervalued against the US Dollar. As at July 2022 utilising raw data a Big Mac costs R39.90 in South Africa and $5.15 in the US. The implied exchange rate is therefore R7.75 to the Dollar. This means that the South Africa Rand is the 4th most undervalued currency in the world.

Source: Businesstech

This means that the exchange rate is not based on the real value of currency but rather on the lack of demand for a currency even if a country’s economy is strong.

You can read more on The Big Mac Index and value of the South African Rand here