Abstract
The Big Mac index has been used to support the claim that the Chinese currency (Renminbi, or RMB) is undervalued. This paper intends to evaluate the Big Mac index as a guide for currency valuation and to analyze the value of the RMB. Because the Big Mac index fails to account for the nontradable components in its pricing, it is a misleading measure for currency valuation for countries whose income levels are different from the benchmark currency countries. The RMB is being overvalued by the index, as China's per capita income is significantly lower than that of the United States.
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