Big Mac index shows overvalued Venezuelan currency

The Big Mac index computed by The Economist showed that the Venezuelan bolivar is the most overvalued currency worldwide with respect to the US dollar, reflecting the imbalance of the Venezuelan economy.

The Big Mac index is based on the purchasing-power parity theory that provides that the exchange rate between two currencies is balanced when the price of a single product is the same in both countries. For such reference, a Big Mac burger is commonly used. 

By contrasting the Venezuelan and the Russian currencies at the current exchange rate, a Big Mac Burger, which costs USD 4.33 in the US, costs USD 2.29 in Russia and USD 7.92 in Venezuela, which shows that the Venezuelan currency is overvalued.

According to the index, overvaluation of the Venezuelan currency stood at 83% by the end of July.

An overvalued currency implies that exports lose ground as goods manufactured in Venezuela are more expensive for the rest of the world. Meanwhile, imports continue growing as prices are low.

Such disparity is the result of a fixed exchange rate that has stood at VEB 4.30 per US dollar, while the Venezuelan inflation is globally among the highest. The Venezuelan accumulated inflation in a 12-month period through April stood at 23%.

Translated by Jhean Cabrera