What the Big Mac Index can tell us about currencies around the world

What can a world-famous fast-food burger tell us about the future of the Australian Dollar? More than you might think.

Substantial amounts of time, money and research are invested each year in an effort to work out what will happen to the value of currencies. Will the Australian Dollar rise or fall against the mighty US Dollar? Will Greece’s economic woes continue to affect the performance of the Euro? Economists, fund managers and forex traders all search for the crystal ball that can accurately predict the future.

Despite the many complex economic models in place to chart the fluctuations in currency value, there may be an even simpler way to determine the true worth of a currency. It’s known as the Big Mac Index and it offers a unique and interesting way to look at exchange rates.

What is the Big Mac Index?

When the experts at The Economist were looking for a way to explain exchange rate theory to the general public in 1986, they settled on a burger known around the world to help them do it. The Big Mac Index compares the price of a McDonald’s Big Mac in the US with the price of the same burger in a range of other countries around the world.

The Big Mac Index is based on the theory of purchasing-power parity (PPP). The basic premise of this theory is that, over time, exchange rates should move towards the rate that equalises the cost of an identical basket of goods and services in any two countries. So in this case, the price of the near-ubiquitous Big Mac in two countries should eventually reach the same level.

Although the index was never intended to offer a precise way to determine the true value of a currency, it has become a popular and widespread method useful for explaining exchange rates to everyday citizens. Often referred to as a global standard for measuring the relative value of a currency, the Big Mac Index has even made its way into many respected economics textbooks. The term "Burgernomics" was coined to refer to this unique way of looking at exchange rates.

big mac fries

The 2016 Big Mac Index

The latest data on worldwide burger prices was released in January 2016. Based on the raw data calculations, where the price of a Big Mac was USD$3.74 in Australia compared to USD$4.93 in the United States, the Australian Dollar was undervalued by 24%.

The same data revealed that the Russian Ruble was undervalued by 69% and the Venezuelan Bolivar by a massive 86.5%, while the Swiss Franc was almost 31% overvalued. Sweden and Norway were the only two other countries with currencies classed as being overvalued, at 6.1% and 5.8% respectively.

Interestingly, in July 2014, the Big Mac Index suggested that the Australian Dollar was almost exactly at the point where it should be. Market exchange rates had the price of a Big Mac in Australia at USD$4.81, compared to USD$4.80 for the same burger in the United States.

The price of the Australian Dollar relative to the US Dollar has steadily declined since then, however, reaching a low of 68 cents in January 2016 before climbing back above the US 75 cent mark in March.

If the Aussie Dollar is to regain parity with the US Dollar, the Australian economy might need a little bit of "special sauce" to help it get there.

Shirley Liu

Shirley Liu is a program manager at finder, formerly the publisher for Banking and Investments. She is passionate about helping people make an informed decision, save money and find the best deal for their needs.

Was this content helpful to you? No  Yes

Related Posts

International Money Transfer Offers

Important Information*
TorFX International Money Transfers

TorFX guarantees to match any competitor's exchange rate. Conditions apply.
Send money overseas in 30+ currencies with competitive rates for transfer amounts over $2,000.

WorldFirst International Money Transfers

Send 60+ currencies at competitive rates with $0 transfer fees for Finder customers. WorldFirst will beat any eligible quote from another provider.

OFX (Ozforex) International Money Transfers

$0 transfer fees for Finder customers.
$0 transfer fee on transfers over AU$10,000, $15 flat fee applies otherwise. 24-hour customer service available with a local support team.

WorldRemit International Money Transfers

An online money transfer service with cash pickup, bank account to bank account and airtime transfers available.

Ask an Expert

You are about to post a question on

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, or seek advice before you decide to act on our content. By submitting a question, you're accepting our Terms of Use, Disclaimer & Privacy Policy and Privacy & Cookies Policy.
Ask a question
Go to site