Rupee most undervalued currency in the world: Big Mac index

Why are Indian exports surging (up 46% during Apr-Jun 2011) when the rupee is at a 3-year high against the US dollar? It’s because the most quoted exchange rate of the rupee ( versus $) is also the most misleading right now. In real terms, the rupee is actually one of the most undervalued currency in the world.

The famous Big Mac index proves this conclusively. Developed by The Economist 25 years ago, the Big Mac index uses the price of McDonald’s burger in different countries to construct an informal (but surprisingly accurate) indicator of real exchange rate.

India, which makes a debut in the index this week, has one of the most undervalued currencies vis-a-vis the dollar—even more than the Chinese yuan. As The Economist says, it’s fast food for thought.