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UPDATE OF BIG MAC PURCHASING POWER PARITY RATES 

The Economist of 16 January 2004 updated its Big Mac purchasing power parity rates. 

The graph below, which was calculated from the data provided by The Economist, shows the position with respect to the rand. The actual exchange rate on 14 January 2004 was used.

The rand in general is overvalued (shown in red on the graph) against the currencies of Latin America and South East Asia and undervalued (shown in blue on the graph) against the currencies of the rich industrial countries. The rand’s valuation against the dollar, euro, yen and pound is shown in green. 

Many of the currencies against which the rand is overvalued fix their currencies against the dollar. The rand is about 60% overvalued against the Chinese yuan, and almost 62% undervalued against the Swiss franc. 

The table shows the actual exchange rates as well as the purchasing power parity rates for the rand as well as the four major currencies.

The table is broken up in two parts. In the bottom pyramid, which is shown in red, the purchasing power parity rates are given. Exchange rates are shown as the amount of the own currency needed to purchase a unit of foreign currency. The top part of the table, shown in black, shows the actual exchange rates on 14 January. For the yen the rates in the case of South Africa is shown as rand per 100 yen. 

The rand is undervalued against the four major currencies. The yen is undervalued against the dollar, euro and the pound. The actual rate of the pound against the euro is very close to the purchasing power parity rate. 

The rand is now 29% undervalued against the dollar. The last time the undervaluation was so low was in 1997 when it was 27% undervalued against the dollar. 

In 2002 14% of South Africa’s imports came from and 9% of exports went to countries where the rand according to the Big Mac standard is overvalued. South Africa competes with these countries (China, Brazil) in third markets and the impact on South Africa’s foreign trade from the overvalued rand is therefore larger than what is indicated by our trade with these countries. 

Last updated 16 January 2004

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