By Kim Yoo-chul
Staff Reporter
Britain’s ‘Economist’ magazine reported that the South Korean won is undervalued against the U.S. dollar by 8 percent according to the internationally viable, and self-penned, ``Big Mac’’ index to measure currency discrepancies.
The article stated that a Big Mac in South Korea costs $3.14, which is the 16th highest in price among 47 countries surveyed. The hamburger in the United States costs $3.41.
The top price for a Big Mac was recorded in New Zealand _ $5.89 _ followed by Switzerland ($5.20), Denmark ($5.08), Sweden ($4.80), the Eurozone average ($4.17) and Turkey ($3.66).
The cheapest price for the burger was in China at $1.45. The magazine reported that the Chinese currency, the yuan, is undervalued against the dollar by 58 percent.
The Big Mac index, introduced by The Economist in 1986, is based on the notion that a currency’s price should reflect its Purchasing Power Parity (PPP)
The Big Mac parity is the exchange rate, which means the hamburger costs the same abroad as it does in the United States. Comparing actual exchange rates with PPPs indicates whether a currency is overvalued or undervalued.
But the Korean government stated that it considers the Korean currency to be overvalued currently.
yckim@koreatimes.co.kr