COMMENT | Ever hear of the Big Mac Index? It’s a simplistic comparison to see how much purchasing power a certain country’s currency has over another. It was created by the Economist in the 1980s.
Bear in mind that it is quite simplistic, but that is exactly the point as to why it is so important.
But I have to make this clear because there are those of you out there who see yourselves as ‘purists’ and ‘intellectuals’ who are going to attack this as being inaccurate.
Go to a McDonald’s anywhere in Malaysia and the price of a Big Mac would be the same (except if you go to an airport or Genting Highlands!) which is around RM12. Now compare that with the price of a Big Mac in the United States which is US$3.99 (around RM17). This would mean that the ringgit is 29 percent undervalued relative to the US dollar.
What this means is that we Malaysians who earn in ringgit will be able to buy fewer things in the United States or any other country because our currency is undervalued.
So, we will feel the pinch...