"In valuing currencies, nothing works." Why "FEEL" is the Best Measure.

Formal measures of valuing currencies are open to manipulation by politicians

The more formal measures are open to manipulation by politicians, who can make their currency, and thus their country, look competitive by cherry-picking data.  

To accurately value currencies, one has to correct for different inflation rates.  

• One common measure, the real effective exchange rate (REER), corrects for consumer price inflation in a country's major trading partners.  
• Competing measures correct for producer prices, labour costs, or per capita income.  
• The results, however, are often contradictory.  

The Economist's Big Mac Index

To improve clarity, experts have attempted to rank how expensive countries are by comparing prices for common items.   

• The granddaddy of these rankings is the Economist's Big Mac Index.  
• Others compare prices for Starbuck coffee, iPhones and other goods.  

All these approaches acknowledge that the only way to value a national currency is by how cheap it feels to buy goods in that country.

Judging a currency by how cheap it "feels" may sound vague, but there is no better way.  

In the absence of an accurate measure, outsiders need to trust that they will know an expensive currency when they feel it.  Of course, the feel of a currency will vary with the traveler. 

• Brazil may feel less expensive to Americans paying in dollars than to Europeans paying in euros.  
• In general, though a rising currency tends to be rising against most major currencies and the currency that matters most is the US dollar.