After the recent adjustment of the official exchange rate, The Argentine weight went from being one of the most overvalued coins in the world to be located among the undervalued, According to him Big Mac Index that elaborates The Economist.
The acceleration in the official dollar price in July – with an accumulated increase of 5.7% – modified the equation. According to the index prepared by the British publication, The Argentine peso now appears with an undervaluation of 14.6% against the dollar, a notable turn compared to last February, when it appeared as The second most overvalued currency in the world, only behind the Swiss Franco.
The index is built from the price of the Big Mac, the classic McDonald’s hamburger. In the US it costs US $ 6,01, while in Argentina it is sold at $ 6,600. From that difference, The Economist calculates An implicit exchange rate of $ 1,098.17, compared to $ 1,286.01 that took as an official reference, which throws that 14.6%gap.
But the photo changes if it is adjusted for the per capita income of each country. In that scenario, the Argentine peso appears as overvalued: The index suggests that the Big Mac in Buenos Aires should cost 27% less than it costs today, which would imply that the local currency is 17% above its adjusted “theoretical value”.
This turn in the assessment occurs in a context of exchange rearrangement, after weeks in which the Government maintained the official dollar below the medium of the flotation band ($ 1,200), and that just began to move more strongly since the end of June. The end of the temporal decline of retentions and the closure of the quarter of greater liquidation of the agriculture marked the beginning of a new stage. At the same time, the dollar began to weaken globally, which strengthened other regional currencies, such as the Brazilian real.
The Economist’s index also reveals that The Swiss Franco remains the most overvalued currency on the planet (49.6%). They are followed by Uruguayan weight (29.6%), the Norwegian crown (22.1%), the Swedish crown (21.8%), the Danish crown (16.6%), the euro (15.2%) and the sterling pound (13.5%).
Among the most undervalued coins in Latin America appear The Brazilian real (28.4%), the Chilean weight (22.6%), the Mexican (12.2%) and the Colombian (5.2%).
What is the Big Mac index?
Created in 1986 by The Economist, the Big Mac Index seeks to compare the purchasing power of coins based on a standardized product in almost everyone: the most iconic hamburger in McDonald’s. The index is based on the theory of purchasing power parity (PPA), which argues that the exchange rate should match the prices of a basket of similar goods between two countries.
In addition to the simple version, the index offers a measurement adjusted by GDP per capita, which tries to capture structural differences between developed and emerging economies. In contexts such as the current one, where the Argentine exchange rate is in motion, the Big Mac Index offers an alternative reference – and visual – on the relative value of the weight.
Source: Ambito
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