The Big Mac Index – the tastiest way to compare currencies

How does the price of a McDonalds Big Mac differ around the world? That’s the question The Economist has been answering since 1986. By looking at various prices for the same product, the Big Mac Index is a quick and fun way to compare currency values – they call it ‘burgernomics’. There’s a fully interactive version online, so you can compare any two currencies.

Is the Kiwi dollar undervalued?

At the date of the 2022 Big Mac Index release:

• A Big Mac in the United States cost US$5.15.

• A Big Mac in New Zealand cost NZ$7.10.

That implies an exchange rate of 1.38, but the actual exchange rate was 1.6, suggesting that the Kiwi is 14% undervalued against the US dollar. We’re on par with the UK pound, and 7.1% undervalued on the euro – but we’re 56.5% overvalued against the Japanese yen and 24.5% overvalued against the Chinese yuan.

How did other countries compare?

New Zealand’s currency undervaluation was about level with the UK’s 13.8% undervaluation, and much lower than the enormous 65.8% undervaluation of the Venezuelan bolivar.

Switzerland had the most overvalued currency, with its francs 30.3% overvalued, with Norway’s krone 21.6% overvalued and Uruguay’s peso 18.1% overvalued.

What does this mean for you?

An undervalued currency is good news for exporters, because it makes New Zealand’s goods and services cheaper for customers in the USA and the EU to purchase.

It’s not such good news for importers, who have to spend more to buy offshore products and bring them into the country. It’s also tougher when you take a trip overseas, as your Kiwi dollars may buy less in countries where our dollar is weaker. So you’ll get better value on a trip to Japan than you do on a trip to the USA.