As B2B business has become global and networked, the once peripheral subject of currency exchange rates has become increasingly critical to ongoing operations. While the subject is admittedly an acquired taste, The Economist has made it more palatable for many with its “Big Mac Index,” the most current version of which was recently published. Here’s how they describe the history and purpose of the tool:
The Big Mac index was invented by The Economist in 1986 as a lighthearted guide to whether currencies are at their “correct” level. It is based on the theory of purchasing-power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalize the prices of an identical basket of goods and services (in this case, a burger) in any two countries. For example, the average price of a Big Mac in America in January 2014 was $4.62; in China it was only $2.74 at market exchange rates. So the “raw” Big Mac index says that the yuan was undervalued by 41% at that time.
As fans of infographics, we highly recommend you have a look at the piece, which features an easily navigated interactive world map that assesses the relative value of currencies according to the Big Mac Index. Among the currencies overvalued and undervalued compared to the US dollar:
As B2B and B2C marketers continue to eye emerging markets as potential revenue streams, the relative value of currency will affect those streams’ momentum.
O well, something to chew on, with or without special sauce.