The Big Mac Index measures the real value of currencies citing two methods \u2013 a direct measure of PPP using raw prices, and an adjusted index that takes into account local GDP data.<\/p>\n
Using the raw data, a Big Mac costs R39.90 in South Africa and $5.81 in the United States. The implied exchange rate is R6.87 to the dollar<\/strong>.<\/p>\n The difference between this and the actual exchange rate \u2013 R15.47 to the dollar at the time of the report \u2013 suggests that the rand is undervalued by 55.6%, which is the eighth-most undervalued currency measured by the index in February.<\/p>\n The most undervalued currency by this measure is the Russian ruble and the Turkish lira, which are undervalued by 70.0% and 67.9%, respectively. South Africa was the third most undervalued currency in 2021, but nations such as Indonesia, Malaysia, Romania, Ukraine and India have since become even more undervalued versus the dollar.<\/p>\n GDP per capita<\/strong><\/p>\n However, the raw index does not tell the full story of currency valuation.<\/p>\n Because many argue that, due to PPP, the cost to produce a Big Mac is cheaper in poorer countries, The Economist factors in another important indicator \u2013 GDP per capita \u2013 to draw a more accurate conclusion.<\/p>\n \u201cIt is worth pointing out that it is common for poor countries to seem cheap relative to rich ones in any simple comparison of prices,\u201d The Economist said, noting that in most countries, \u201cthe price of a burger is about what you would expect given the country\u2019s GDP per person\u201d.<\/p>\n In the group\u2019s adjusted index, South Africa\u2019s currency still remains heavily undervalued (11th), but less so than when dealing with straight conversion data.<\/p>\n In PPP terms, a Big Mac costs 55.6% less in South Africa ($2.58) than in the United States ($5.81) at market exchange rates.<\/p>\n![\"\"](\"https:\/\/businesstech.co.za\/news\/wp-content\/uploads\/2022\/02\/Rand-versus-dollar-RAW.png\")
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