Big Mac Index: Colon is the second least devalued currency in the world

QCOSTARICA — Costa Rica’s currency, the Colon, is the second least devalued currency in the world according to the Big Mac Index (BMI) published by The Economist on July 31, 2024.

The report measures on average how much money each country needs to buy a Big Mac, a hamburger sold at McDonald’s restaurants, and based on that, is an informal way of measuring the purchasing power parity (PPP) between two currencies, “seeking to make exchange-rate theory a bit more digestible.”

This Big Mac is used to establish the comparison, since it is one of the main products of the fast food chain that is manufactured under the same standards of size, composition and quality, in all the countries where it is sold.

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An overvalued currency is when it is worth more than it should compared to the dollar, on the contrary; an undervalued currency is when it is worth less than it should against the U.S. dollar.

In Costa Rica, the Big Mac costs ¢2,950 (approximately US$5.57), while in the United States, it costs US$5.69 (¢3,014 colones), according to The Economist which has been publishing the BMI since 1986.

Based on this, the BMI deduces that the Costa Rican colon is undervalued by 1.1% against the U.S. dollar, taking into account the difference between the implicit exchange rate (¢518.45) and the exchange rate used for the analysis (¢524.47).

Today, August 13, the U.S. dollar reference rate set by the Banco Central de Costa Rica (BCCR) – Central Bank – is was quoted at ȼ523 for purchase and ȼ529 for sale.

Of the more than 50 currencies analyzed, only six are overvalued relative to the dollar, with the Swiss franc and the Uruguayan peso being the highest at 41% and 24% respectively.

The Big Mac index was introduced in The Economist in September 1986 as a semi-humorous illustration of PPP and has been published annually since then.

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