Why do you need an alternative currency converter? We all know how to find out what our hard-earned cash is worth overseas, right?
If you’re anything like me you head over to xe.com, or download the app, before you skip off to the Post Office to buy your foreign currency.
Traditional currency converters show you how much foreign currency you can buy with £500 for your two-week trip. But it doesn’t really tell you how much stuff you will then be able to buy.
A few years ago a family friend told me about an alternative currency converter method that he swears by and I really like it too. Not least because it uses burgers to figure out economics.
Burgernomics, if you will.
What is the Big Mac Alternative Currency Converter?
“How the hell can burgers help me to figure out the value of my dollar”, I hear you cry!
The Big Mac Index was developed by the Economist in 1986 and has been updated and published every year since.
The system is an informal way of comparing purchasing power between two or more currencies, and tests the extent to which published exchange rates (like those on xe.com) result in goods costing the same amount in different countries.
It shows us whether currencies are at their “correct” level (i.e. the same thing should cost the same price in different countries.)
This isn’t to say that traditional currency conversion is wrong – it isn’t. This is an additional tool to help you to make sense of the true value of a currency.
When is it most useful?
I find this alternative currency converter method most useful when living and working overseas. This is a time when it’s notoriously difficult to understand whether you are being offered a good salary.
Let’s say, in the UK, you earned an annual salary of £25k. But you hated the job and fancied an adventure, so you quit and got yourself a Working Holiday Visa for Australia. Now you’re looking for temporary work in a similar field. You whip out your XE app and figure you should expect to earn $42k working in Sydney.
That’s one way of figuring it out, but you could be missing a trick.
What is the difference in the cost of living between the UK and Australia? How much will it cost to rent a similar flat to the one you had back home? How much will a night out cost you? What about your weekly grocery shop? Will those things be more, or less?
This is where the Big Mac Currency Converter comes into its own.
How does it work?
The system works by comparing the average price of a McDonald’s Big Mac burger in different countries.
The McDonald’s Big Mac was chosen as it is available in a huge range of countries around the globe – one of few products so common and widely available.
For example, in January 2017 a Big Mac averaged $5.06 in the US; in China it was only $2.83 at market exchange rates, suggesting that the Chinese Yuan was undervalued by 44% at that time. Therefore: you would have got almost twice as many burgers for your bucks!
So, going back to our Australia working holiday example, January’s Big Mac Index tells us that the Aussie dollar was overvalued against the British Pound by 14.7%. So maybe you’d be wanting to earn a little more than your $42,000 hey?
Check it out!
You can find The Economist’s Interactive Big Mac Currency Index here.
What do you think? Is this useful, or a kid’s meal without a toy? Share on Facebook and let me know!
Join my email list and get adventure inspiration in your inbox!
Plus! Free guide: How to Get More Adventure in Your Life