How do you measure a currency’s real strength?
What the same loaf costs across a border.
Converting at the exchange rate cannot compare the size of people’s lives. What the same shopping costs in each country — the yardstick that lines up the world’s prices.
In 30 seconds
- Prices tend to be higher in richer countries and lower in poorer ones, so comparing at exchange rates distorts the size of economies.
- The yardstick that evens out price differences is purchasing power parity. The World Bank’s International Comparison Program (ICP) compared 176 economies for 2021.
- Measured at purchasing power parity, the world economy was $152 trillion in 2021. Middle-income economies made up more than half; low-income economies about 1%.
Exchange rates alone cannot compare.
The same dollar buys different amounts in different countries.
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Price differences
The World Bank explains that price levels tend to be higher in high-income countries and lower in low-income ones, so comparisons at market exchange rates make high-income economies look larger and low-income economies smaller.[1]
A yardstick that evens out prices.
Converting so that the same amount of goods can be bought: that is purchasing power parity.
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Purchasing power parity
Purchasing power parity is a conversion rate that evens out price differences between countries, so that the same quantity of goods and services can be bought. The World Bank’s International Comparison Program (ICP) gathers prices in each country to calculate it.[1]
176 economies on the same shelf.
The International Comparison Program compared prices in 176 economies for 2021.
Economies that took part in the International Comparison Program (2021)
The tenth comparison since the programme began in 1968.
Change the yardstick, and the shape of the world changes.
At purchasing power parity, the size of the world economy — and how it divides — changes.
Size of the world economy at purchasing power parity, 2021
Middle-income economies made up more than half; low-income economies about 1%.
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The size of the world
At purchasing power parity, the world economy was $152 trillion in 2021. Middle-income economies made up more than half, high-income economies slightly less than half, and low-income economies only about 1%.[1]
A scale for reading what comes next.
A scale for reading prices and a currency’s strength.
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Price levels
How each country’s price level moves with income.[1]
The next comparison
The comparison is repeated every few years. How the next results change the shape of the world.[1]
Which conversion
Whether a country comparison in the news is converted at exchange rates or at purchasing power parity.
This is not investment advice
This edition explains how prices and currencies are compared. It does not recommend buying or selling any currency.
Next question
NEXT QUESTIONA world that will not give up its 150-odd wallets.NEXT QUESTIONWhy the world’s currencies speak in dollars.See the Field Notes shelf →What this edition cannot tell you
- Purchasing power parity values for individual countries. This edition covers only the worldwide results.
- Official comparison results for years after 2021.