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The Rand is 54.5% too cheap, says the latest Big Mac Index – but it’s going big in Japan

  • The rand is 54.5% too cheap in dollars, measured in hamburgers, says The Economist.
  • The publication’s famous Big Mac Index shows that the rand remains hugely undervalued against the pound, euro and yuan.
  • But measured in yen, a rand is worth much more than it was.
  • The rand is the fourth most undervalued currency in the index.
  • For more stories go to www.BusinessInsider.co.za.

Measured in hamburgers, the rand is currently 54.5% cheaper than it should be, according to the latest edition of The Economist’s Big Mac Indexreleased this week.

The index, now 36 years old, looks at the prices of McDonald’s hamburgers around the world and uses them to calculate what exchange rates should be at purchasing power parity.

What is now referred to as “Burgernomics” started as a light-hearted experiment, says The Economist, but its easy-to-digest approach to economics has since become something of a global standard.

See the interactive version of The Economist’s Big Mac Index here

As of July 2022, South Africa has the fourth most undervalued currency in the index, whether you count in dollars, euros or pounds. It is beaten to the bottom of the list by only Indonesia’s rupiah, the Romanian leu and Venezuela’s bolívar.

Adjust for gross domestic product (GDP) – on the assumption that hamburgers will cost less in poorer places where labor is cheaper – and the rand is still 42.2% undervalued against the dollar.

The same applies to three of the other major currencies that the index uses. Using the price of the Big Mac, the rand is underestimated by

  • 50.8% against the euro
  • 47.3% against the pound, and
  • 34.2% against China’s yuan

The only exception is the Japanese yen. As recently as early 2021, the Big Mac index suggested that the rand was 42.3% undervalued against the yen. Now the South African currency appears to be only 17.2% too cheap in yen terms.

The yen is at levels not seen since 1998as Japan refused to raise interest rates as much of the rest of the world – including South Africa – prefers to stimulate growth while others try to fight inflation.

See also | How much more will you pay on credit cards, loans and your bond after today’s interest rate increase

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The Rand is 54.5% too cheap, says the latest Big Mac Index – but it’s going big in Japan

Source link The Rand is 54.5% too cheap, says the latest Big Mac Index – but it’s going big in Japan

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