Sydney, January 22:

An Australian investment bank has developed a new indicator for tracking international currency values using the cost of an Apple iPod as a benchmark.

Commonwealth Securities Ltd last week announced its iPod Index to assess the value of global currencies by comparing the cost of a 2-gigabyte iPod Nano music player in US dollars across different countries.

The index is based on the economic principle that one US dollar should buy the same quantity of goods across all countries, and that currencies will fluctuate to close any gaps in purchasing power.

The theory goes like this: If the price in US dollar terms of an iPod Nano is more expensive in Australia than it is in the United States, then the Australian currency may be overvalued. The concept behind the iPod Index is based on The Economist magazine’s Big Mac Index, which uses the cost of a McDonald’s hamburger to compare currency values.

“A key difference between the iPod and Big Mac approaches is that Big Macs are made in a host of countries across the globe whereas iPods are predominantly made in China,” said CommSec’s chief economist Craig James.

As such, exclusive of duties or taxes, the tiny music player should cost nearly the same everywhere. “If there were substantial price differences customers would switch their purchases to other countries, especially given the power of the Internet,” he said.

But a comparison of 26 counties shows significant variation.