A bit of fun from CFR, but with a point - this on the valuation of China's currency:
- The "law of one price" holds that identical goods should trade for the same price in an efficient market
- The Economist magazine's famous Big Mac Index uses the price of McDonald's Big Macs around the world, expressed in a common currency (U.S. dollars), to measure the extent to which various currencies are over- or under-valued
- Big Macs travel badly, however
- So in 2013 we created our own Mini Mac Index that compares the price of iPad minis across countries. Minis are a global product that, unlike Big Macs, can move quickly and cheaply around the world ... this helps equalize prices.
Or, in brief:
- Both indexes currently show the dollar overvalued against most currencies
- But the Big Mac Index puts the average overvaluation at 25 percent ... Mini Mac Index puts it at only 11 percent