If a Big Mac costs only $1.83 in China, is the yuan too cheap?

The sandwich in China costs half of what it does in the US, according to The Economist's Big Mac index.

By , Guest blogger

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    A Big Mac (pictured here in North Huntingdon, Pa.) costs about $3.58 in the United States, $6.87 in Norway, but only $1.83 in China, according to The Economist's latest Big Mac index. Is that evidence that China's yuan is too cheap?
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The Economist has recently released its latest Big Mac Index, where Norway still reigns supreme with the most expensive burger around. When I was in Oslo a few months ago I tried desperately to get my hands on one of these must be better than average, almost $7 burgers, but to no avail. When hunger struck there was no McDonald’s in sight, and I ended up eating at Burger King instead. Clearly not quite the same…

More important than my failed expensive burger eating attempt is what the new rankings show about US-China relations… in particular over the small matter of yuan appreciation. According to the Economist‘s findings, “the yuan is 49% below its fair-value benchmark with the dollar.” Whether that’s enough for Tim Geithner and the US Treasury to label it a currency manipulator this coming mid-April is yet to be seen.

The rankings also show how strong the commodities-backed Australian and Canadian dollars have become. Here are the rest of the top and bottom five Big Mac Index countries with their respective burger prices:

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Top 5 – Most Expensive Big Macs
* Norway, $6.87
* Switzerland, $6.16
* Euro area, $4.62
* Canada, $4.06
* Australia, $3.98

Bottom 5 – Least Expensive Big Macs
* Taiwan, $2.36
* Indonesia, $2.28
* Thailand, $2.16
* Malaysia, $2.12
* China, $1.83

See the graphic, complete list, and more details at The Economist’s coverage of how the Big Mac index shows the Chinese yuan is still undervalued.

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