Dirham undervalued 25%, says Big Mac survey

The UAE dirham, like other Gulf currencies, is undervalued against the US dollar by nearly 25 per cent, says the Big Mac Index survey, conducted by the Economist magazine.

The new data, based on the price of Big Mac burger in various countries, showed the decline of the US dollar versus major currencies, which again strengthens the case for dirham devaluation.

The annual survey found the UAE dirham to be 24 per cent undervalued with respect to the dollar when buying a Big Mac in the country, while the Saudi Arabian riyal was undervalued by 25 per cent. Both the UAE and Saudi currency are directly pegged to the dollar. The Egyptian pound was undervalued to the extent of 31 per cent.

The Big Mac Index is based on the theory of purchasing-power parity (PPP), which says that exchange rates should move to make the price of a basket of goods the same in each country. According to the survey, only a handful of currencies are close to their Big Mac PPP. The British pound, Swedish krona, Swiss franc and Canadian dollar are trading above burger benchmark.