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eurasiantimes.com
According to the IMF’s World Economic Output 2020 released recently, China has now overtaken the US to become the world’s largest economy.
Yes, you read that right. The International Monetary Fund (IMF), using the more reliable and now widely accepted yardstick, called the Purchasing Power Parity (PPP), has determined China’s economy at $24.2 trillion compared to America’s $20.8 trillion.
The PPP calculation method used by the IMF enables you to compare how much you can buy for your money in different countries. The economists have traditionally been using MER (market exchange rates) to calculate GDP, which doesn’t reflect the real figures.
The MER method is being viewed with extreme suspicion because it underestimates the buying power of the currencies of many countries. As a result, the currencies of many nations are undervalued against the dollar.
With PPP adjustment, IMF estimates China’s economic output outmanoeuvring the US’s by a huge margin. IMF is clear in its report, it says the PPP “eliminates differences in price levels between economies” and thus compares national economies in terms of how much each nation can buy with its own currency at the prices items sell for there.
After the IMF, the CIA also decided to switch from MER to PPP in its annual assessment of national economies. The CIA Factbook notes that “the official exchange rate measure of GDP is not an accurate measure of China’s output; GDP at the official exchange rate (MER GDP) substantially understates the actual level of China’s output vis-a-vis the rest of the world; in China’s situation, GDP at purchasing power parity provides the best measure for comparing output across countries.”
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