Currency exchange rates, at least since the first data published by the International Monetary Fund for 1948, have been biased against less developed countries. The currency exchange rates of developed countries have been overvalued. The effect has been that poor countries have been subsidizing the standard of living of already rich countries. In this circumstance, free trade is precisely the wrong policy. National moneys need to be unbiased, neutral, fair, before adopting a policy of free trade.
Fair rates can be established by setting currency exchange rates at purchasing power parity as Adam Smith asserted it to be in the first line of his famous 1776 classic, The Wealth of Nations. There he wrote, "The annual labour of every nation is the fund which originally supplies it with all the necessaries and conveniencies of life which it annually consumes, and which consist always either in the immediate produce of that labour, or in what is purchased with that produce from other nations."
The method I propose for equalizing the value of national moneys is to divide Gross Domestic Product by the total hours worked by the labor force (GDP/THW). Gross Domestic Product is the sum of the market selling prices of all goods and services produced in a year. It is actually the annual Gross Domestic Price expressed in money. Annual labor is total price expressed in work time. Therefore,GDP/THW is money price per hour of work.
The calculation, GDP/THW, would adequately define exchange rate parity except that currency exchange rates are reported per $1U.S. making another calculation necessary. Existing currency exchange rates need to be converted to their equivalent in work time. This is accomplished by dividing the exchange rate by GDP per hour, which expresses the exchange rate as a fraction or multiple of hours. Multiplying by 60 converts per hour to minutes.
The following table shows the currency exchange rates values in minutes of work as published in the February 2005 International Financial Statistics.
The file includes data and calculations that show currency exchange rates in 2000 correlated with GDP/THW a strong r = .88 of a possible 1.00. IMF currency exchange are also converted to their equivalent in minutes of work. The sheet with the results shows countries arranged by fewest minutes to most minutes, then arranged by geographic region.
Close neighbors tend to have similar exchange rates, suggesting that adjustment to parity would require little movement of rates. Differences in rates between regions tend to be larger, suggesting adjustment to equal rates to require more adjustment.