What is purchasing power parity? How PPP compares prices between countries
By SendPay Business · · 2 min read
- 1Start from the UK
- 2Send to the countries you choose
- 3It arrives in their own currency
Purchasing power parity (PPP) is the idea that, over time, exchange rates should move so that the same basket of goods costs the same in different countries once prices are converted into one currency.
A simple example
If a basket of shopping costs £100 in the UK and $150 in the US, PPP suggests an exchange rate of $1.50 to the pound. If the market rate is different, one currency looks cheap or expensive by that measure.
The Big Mac Index
The Economist has published the Big Mac Index since 1986. It compares the price of a Big Mac in different countries as a light-hearted way to show which currencies look over- or undervalued against PPP.
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Why rates drift from PPP
- Many things, like haircuts and rent, can't be traded across borders.
- Taxes, transport costs and local wages differ.
- Interest rates and investment flows move currencies day to day.
How PPP is used
The World Bank and IMF use PPP rates to compare incomes and economy sizes between countries more fairly than market exchange rates allow.
Where SendPay fits
SendPay platforms let your customers hold and exchange GBP, EUR and USD under your own brand, at an exchange fee you set, powered by licensed partners.
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Your own money app- 1Name it and pick your colours
- 2Choose what it does
- 3Launch when you are ready
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Questions people ask
Which currency looks cheap?
Compare prices between countries and find the PPP exchange rate, free.
Purchasing power parity calculator →Read next
Spotted a mistake or something out of date? and we'll fix it. How our guides are made
This guide is general information, not legal or financial advice. SendPay Business is a technology company, not a bank, and does not take deposits; regulated services on the platforms are provided by licensed partners. Other companies named in this guide are reference points only and are not affiliated with SendPay Business.