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Theinternational dollar (int'l dollar orintl dollar, symbolsInt'l$.,Intl$.,Int$), also known asGeary–Khamis dollar (symbolsG–K$ orGK$), is a hypothetical unit of currency that has the samepurchasing power parity that theU.S. dollar had in the United States at a given point in time.[1][2] It is mainly used ineconomics and financial statistics for various purposes, most notably to determine and compare thepurchasing power parity andgross domestic product of various countries and markets. The year 1990 or 2000 is often used as a benchmark year for comparisons that run through time. The unit is often abbreviated, e.g.2000 US dollars or2000 International$ (if the benchmark year is 2000).
It is based on the twin concepts ofpurchasing power parities (PPP) of currencies and the international average prices of commodities. It shows how much a local currency unit is worth within the country's borders. It is used to make comparisons both between countries and over time. For example, comparing per capitagross domestic product (GDP) of various countries in international dollars, rather than based simply on exchange rates, provides a more valid measure to comparestandards of living. It was proposed byRoy C. Geary in 1958 and developed bySalem Hanna Khamis between 1970 and 1982.
Figures expressed in international dollars cannot be converted to another country's currency using current market exchange rates; instead they must be converted using the country's PPP exchange rate used in the study.
According to IMF, below is the implied PPP rate of International dollar to local currency of respective countries in 2022:
This system is valuing the matrix of quantities using the international prices vector. The vector is obtained by averaging the national prices in the participating countries after their conversion into a common currency with PPP and weighing quantities. PPPs are obtained by averaging the shares of national and international prices in the participating countries weighted by expenditure. International prices and PPPs are defined by a system of interrelated linear equations that need to be solved simultaneously. The GK method produces PPPs that are transitive and actual final expenditures that are additive.
When comparing between countries and between years, the international dollar figures may be adjusted to compensate for inflation. In that case, the base year is chosen, and all figures will be expressed in constant international dollars for that specified base year. Researchers must understand which adjustments are reflected in the data (Marty Schmidt):
Suppose PPPj is the parity of j-th currency with a currency called international dollars, which may reflect any currency, however, US dollar is the most commonly used. Then the international price Pi is defined as an international average of prices of i-th commodity in various countries. Prices in these countries are expressed in their national currencies. Geary-Khamis method solves this by using national prices after conversion into a common currency using the purchasing power parities (PPP). Hence, the international price, Pi of i-th commodity is defined as:
This equation implies that the international price of i-th commodity is calculated by dividing the total output of i-th commodity in all selected countries, converted in international dollars, using purchasing power parities, by the total quantity produced of i-th commodity. Previous equation can be rewritten as follows:
This equation suggests that Pi is weighted average of international prices pij after conversion into international dollars using PPPj. PPPj is by Geary-Khamis system defined through this equation:
The numerator of the equation represents the total value of output in j-th country expressed in national currency, and the denominator is the value of j-th country output evaluated by repricing at international prices Pi in international dollars. Then PPPj gives the number of national currency units per international dollar.
Geary-Khamis international dollar is widely used by foreign investors and institutions such as IMF, FAO and World Bank. It has become so widely used because it made possible to compare living standards between countries. Thanks to the international dollar they can see more trustworthy economic situation in the country and decide whether to provide additional loans (or any other investments) to said country, or not. It also offers some comparison of purchasing power parities all around the world (developing countries tend to have higher PPPs). Some traders even use Geary-Khamis method to determine if country's currency is undervalued or overvalued. Exchange rates are frequently used for comparing currencies, however, this approach does not reflect real value of currency in said country. It is better to include PPP or prices of goods in said country. International dollar solves this by taking into account exchange rates, PPP and average commodity prices. Geary-Khamis method is the best method for comparisons of agricultural outputs.
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