Brazil’s Has World’s Most Expensive Currency, 149% Overvalued, Says The Economist

A Big Mac sandwichThe Brazilian real is the world’s most expensive currency and is 149% overvalued against the dollar. The Colombian peso, the next most expensive currency is 108% above the U.S. currency, This according to the British magazine The Economist, which has created a new version of the Big Mac index.

The new and improved index takes into consideration not only the price of the hamburger but also the Gross Domestic Product (GDP) per capita of each country analyzed.

The new methodology also shows that China’s currency, the yuan, is not as undervalued as most people believe. The Economist says the yuan seems to be close to its fair value against the dollar and is even slightly overvalued: 3%.

Using the old method, which compares only the price of the Big Mac, the Brazilian currency is 52% above its fair value. In Brazil, the sandwich costs the equivalent of US$ 6.16 while in the US, the price is US$ 4.07.

Using the old Economist’s methodology, the Chinese currency is 44% below its fair value against the dollar. The average price of the Chinese Big Mac is US$ 2.27.

The British magazine’s Mac index, which is 25 this year, is based on the theory of purchasing power parity. This notion points to the relationship between two currencies based on the amount of each currency that is needed to purchase a particular set of products – in this case the Big Mac sandwich at McDonald’s – in each country.

Brazil and Argentina are undergoing a similar situation as US excess liquidity floods world markets with dollars that force the appreciation of local currencies, a phenomenon Brazil officially identifies as the “currencies war.”

The Argentine Peso overvalued in 18.9%. The price of a Big Mac is 4.84 dollars in Argentina, which means the exchange rate should be established at 4.92 Argentine pesos to the dollar, when it really stands at 4.13 pesos.

But if GDP per capita is taken into account, the exchange rate imbalance is even greater. This is because in emerging countries the Big Mac should be cheaper since labour overall is less qualified and should have a per unit cost lower than in industrialized countries.

This means that the difference in exchange rate for Brazil soars to 149% and in Argentina to 101%.

But in some Latin American countries the opposite is also true with some currencies under-valued according to GDP per capita PPP. This would be the cases of countries as Mexico (-32%); Peru (-10.3%) and Chile (-1.7%).

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  • jan z. volens

    Correction: ABIN document lists NGOs Non-Governmental Organizations, not NROs.
    At end of above commentary- are meant NGOs – not NROs. NGOs=Non-Governmental Organizations=Organicacoes nao governamentais=ONGs. (The document is reproduced in CONVERSA AFIADA, julho 5.2011 – search in window “buscar”.)

  • jan z. volens

    Britain’s “Economist” and “BBC” both are PRIMARILY geopolitical tools to influence global public!
    Both the “Economist” and “BBC” are excellent, superior grade media. But their PRIMARY aim is to influence the global public: 1. Timing attention on geopolitically targeted subjects – at junctures considered important for Britain and the USA. 2. By furnishing facts known already known by others, and framing those facts with a slightly unfavorable point fo vision – designed to lower the intended target’s image over the long term. 3. But in order to remain creditable, both the “Economist” and “BBC” try very much to remain within a “balanced” concept: The geopolitical aim of Britain’s interest is long-range, to remain a dominant player in the global flow of information – while using the tild within the “balance” spectrum to continously drip, drip, drip with very subtle propaganda against the intended target. In Brazil – BBC-Brasil and DW (Deutsche Welle – TV & Radio nacional de Alemanha) are the PRIMARY hostile foreign propaganda organizations which are being re-published by Brasil’s media. (Assange explained it well:” With “Fox” you know where they stand, but “CNN” disguises its aims”. —Lesson: Suspect what a source of information may really intend…)—Today, Britain is a maritime neighbour of Brazil – along thousands of miles of the British islands chain in the center of the South Atlantic – and Britain remains in a state of diplomatic conflict with Brazil’s neighbour Argentina – over the sovereignity of the Malvinas (Falklands, and South Georgias). This may become a zone of tension and confrontation in future years – over minerals, oil, gas. Ex-Defense Minister Jobim said it well, April 12. 2011 to other Southamerican military leaders: “Our region will be threatened during the next 50 years over our resources. We need a dissuasive capacity against threats from ourside our subcontinent!” (A threat could come from only one direction: NATO (USA, Britain, Germany – and their “coalition of the willing”) – they will use new gimmicks: “Defending the environment, saving the climate…” – watch their NROs heating up their continous propaganda war against Brazil and all of South America! Brazil is mobilizing now – the ABIN document with the list of the NROs and the submarine construction program – are preliminary defensive moves by Brazil.

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