Money Editor for NZ Herald

Big Mac index shows Kiwi dollar undervalued

The Economist's Big Mac index points to New Zealand's currency being undervalued. Image/Supplied.
The Economist's Big Mac index points to New Zealand's currency being undervalued. Image/Supplied.

The Kiwi dollar is undervalued by more than 17 per cent according to The Economist's Big Mac Index - a light-hearted take on the buying power of a country's money based on the cost of the well-known burger.

According to the index New Zealand's dollar is 17.3 per cent lower than where it should be against the US dollar.

Buying a Big Mac in New Zealand costs the equivalent of US$4.19 here versus US$5.06 in America.

Switzerland's currency was the most over-valued according to the index while Egypt's was the most under valued.

Buying a Big Mac in Switzerland cost the equivalent of US$6.35 while in Egypt it was just US$1.46 undervaluing the Egyptian pound by 71.1 per cent.

The raw index doesn't take into account the cost of labour - how much people are paid to make the burger - which is likely to be much less in poorer countries - making the burgers much cheaper.

An adjusted index which takes into account the GDP of a country and divides it by the population pointed to the currency gap being much smaller in New Zealand with just a 2 per cent undervaluation by the Kiwi.

In this index Brazil was found to have the most overvalued currency while Egypt still remained the most undervalued.

Top three overvalued currencies
• Switzerland 25.5 per cent overvalued
• Norway 12 per cent overvalued
• Sweden 4 per cent overvalued

Most undervalued currencies
• Egypt 71.1 per cent undervalued
• Ukraine 69.5 per cent undervalued
• Malaysia 64.6 per cent undervalued
*based on the Big Mac Index raw data

- NZ Herald

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