Chinese renminbi grossly undervalued, says Big Mac Index

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A picture speaks a thousand words … at least when considering the external value of the Chinese renminbi as measured by the Big Mac Index.

For those not familiar with the Big Mac Index, it is published by The Economist as an informal way of measuring the purchasing power parity (PPP) between two currencies and supposedly provides a test of the extent to which market exchange rates result in goods costing the same in different countries. According to The Economist, it “seeks to make exchange-rate theory a bit more digestible”.

25-march-bm1

Source: Agora Financial’s 5 Minute Forecast, March 23, 2010.

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