What is a dollar worth in China?

A question from Askville:

What is our dollar worth in US cents in China?

I don’t want the dollar versus yen. For example, $1 = .75 in China.

Is there a website out there to give comparisons to other countries?

What you are looking for is called “purchasing power parity”. The problem with purchasing power parity is that it only makes sense when you compare countries with similar level of income and economic development. Generally, purchasing power parity analysis centers around figuring out what a certain set (or, as researchers often refer to it, “basket”) of goods and services sells for in two countries being compared. When you compare countries with similar level of income, the basket is fairly easy to choose, as median households in the two countries are likely to have similar consumption patterns. In countries where income levels are vastly different (as they are in the U.S. and China), you cannot make an informed comparison, because the median American household has consumption patterns that greatly differ from those of the median Chinese household. The Chinese tend to live in smaller homes compared to the Americans, fewer of them have cars, etc. So you really can’t pick a basket that is representative of both nations…

A simpler approach is to use only one good commonly used in both countries (say, a gallon of gasoline or even a Big Mac, as folks at The Economist half-jokingly do) as a yardstick, but you must pick this good carefully, if you want to measure the relative values of currencies as opposed to the relative levels of taxation (for example, gasoline prices generally are twice as high in the UK as they are in the U.S., which is squarely attributable to high excise taxes on gasoline in the UK). If you do feel like using the Big Mac as a yardstick, you would find that based on this “indicator”, the Chinese currency was 58% undervalued relative to the dollar as of July 2007, so you can say that in China a dollar is worth about $1.58, because it buys you 58% more Big Macs…

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