The Egyptian pound is significantly undervalued against the US dollar, according to the latest figures from The Economist’s Big Mac Index.
The informal gauge—widely recognized for illustrating currency misalignment—shows that a Big Mac costs EGP 125 in Egypt compared to $6.01 in the U.S. This price difference suggests an implied exchange rate of EGP 20.80 per dollar, far below the current market rate of EGP 48.70, indicating a 57.3% undervaluation of the Egyptian pound.
Even when adjusting for income disparities using GDP per capita, the pound remains 29.1% undervalued, underscoring deeper structural issues beyond simple cost-of-living differences.
The Big Mac index: A practical currency benchmark
Launched in 1986 as a lighthearted take on purchasing power parity (PPP), the Big Mac Index has become a popular informal tool to gauge currency valuations worldwide. The theory behind PPP argues that exchange rates should balance the price of a basket of identical goods across countries. Because McDonald’s Big Mac is standardized globally, its local price provides a practical benchmark for comparing currencies.
Usha Haley, Barton Distinguished Chair in International Business at Wichita State University, explained to Food & Wine, “A Big Mac, which is fairly standardized around the world, should cost the same everywhere if exchange rates are in balance. The Big Mac then becomes a rough basket of currencies, covering costs for beef, wheat, onions, tomatoes, dairy, and more. Its price helps indicate whether a currency is over- or undervalued.”
Regional trends
Egypt is part of a wider trend of currency undervaluation. For example, a Big Mac costs $2.27 in China compared to $4.07 in the U.S., signaling the Chinese yuan is undervalued by about 44%. The Indian rupee shows one of the highest gaps at 60%, followed by other Asian currencies such as those of Ukraine, Hong Kong, and Malaysia—all exceeding 40% undervaluation.
This trend highlights a broader regional pattern of suppressed currency values versus the US dollar, with eight of the ten most undervalued currencies coming from Asia.
Overvalued currencies
Conversely, several currencies are significantly overvalued. The Swiss franc and Norwegian krone lead the pack, each over 60% overvalued against the dollar. Sweden’s krona is overvalued by more than 40%, and Brazil’s real exceeds 30%. These premiums often reflect stronger economic fundamentals or heightened investor demand.
Implications for Egypt’s economy
While the Big Mac Index is not a precise scientific tool, it offers a useful snapshot of global currency imbalances. Egypt’s sharp undervaluation signals ongoing pressures on the pound that may affect inflation, trade competitiveness, and purchasing power. As global economic conditions evolve, such informal measures remain valuable for tracking long-term currency trends and structural disparities.
According to the Central Bank of Egypt (CBE) report, in March 2024, the Bank transitioned to a fully market-determined exchange rate regime, effectively unifying the official and parallel market rates. As part of this policy shift, the CBE’s Monetary Policy Committee raised key interest rates by 600 basis points—raising the overnight deposit rate to 27.25%, the lending rate to 28.25%, and the main operation and discount rates to 27.75%—in an effort to control inflation and stabilize the local currency. The report also highlights persistent risks stemming from regional geopolitical instability, particularly the conflict in Gaza and heightened tensions in the Red Sea, which continue to disrupt global trade and place pressure on Suez Canal revenues, thereby posing challenges to the economic outlook despite ongoing reform progress.
