International dollars are used to compare incomes and purchasing power across countries and over time. Here, we explain how they’re calculated and why they’re used.
Much of the economic data we use to understand the world, such as the incomes people receive or the goods and services firms produce and people buy, is recorded in the local currencies of each country. For example, in 2023, Gross Domestic Product (GDP) per capita — a common measure of the average income of people in a year — was around 205,000 rupees in India, 89,000 yuan in China, and 83,000 dollars in the United States.1
These numbers in local currencies can provide useful context within each country. But on their own, they tell us nothing about how these figures compare. How rich or poor is someone with 205,000 rupees in India compared to 89,000 yuan in China or 83,000 dollars in the United States?
International dollars are a hypothetical currency that helps us answer such questions by equating different currencies with what they can buy. They adjust for the fact that the cost of living is much higher in some countries than in others, allowing us to compare data denominated in different currencies in terms of their local “purchasing power”.
In this article, we explain what international dollars are, how they are calculated, and the crucial perspective they offer for understanding living standards worldwide.
One obvious approach for comparing figures in rupees, yuan, and US dollars would be to convert them into a common currency using currency exchange rates — the kind you would see when changing money at a bank or airport kiosk. These are known as “market exchange rates”.
This can be a good approach in some cases, but it doesn’t give us the comparison we often look for: what this money can actually buy in different countries. This is because the cost of living varies a lot across countries. Such price differences are very clear when you travel abroad: A cup of coffee that costs $5 in the United States may cost $1 (about 85 rupees in market exchange rate terms) in India. And it’s not just coffee — your meals, the hotel you’re staying in, the taxi you take to get there, the clothes you buy in the shop — are often cheaper too. Your money has more purchasing power in India than in the US because goods and services generally cost less.
Converting currencies using market exchange rates is not enough to compare what different amounts of money can buy in various places; we also need to adjust for differences in the cost of living. (The appendix below explains more about why market exchange rates fail to capture such price differences.)
A similar issue arises when we compare monetary values over time. The same amount of money may buy more in one year than another, depending on inflation. Knowing that the GDP per capita in India was 6,600 rupees in 1990 and 205,000 rupees in 2023 tells us little about how incomes changed, because prices also changed during that time.2 To compare these values across time meaningfully, we need to account for the changes in price levels by adjusting for inflation.
International dollars do both: they adjust for differences in prices across countries and inflation over time.
An international dollar (sometimes written as international-$ or int-$) is a hypothetical currency that aims to have the same purchasing power everywhere. It is adjusted for differences in living costs across countries and price changes over time.3
One international dollar is intended to buy the same quantity and quality of goods and services, no matter where or when it is “spent.” This makes it easier to compare what money can buy across different countries and over time, regardless of differences in local currencies or price levels.
Many of the economic indicators on Our World in Data — including measures of poverty and economic growth — are expressed in international dollars to facilitate comparisons.
International dollars are calculated by making these two adjustments to local currency data: (i) adjusting for differences in the cost of living across countries and (ii) adjusting for inflation — changes in prices over time.
Adjusting for differences in the cost of living across countries
To account for the differences in the cost of living, economic indicators are adjusted using purchasing power parity (PPP) rates. PPP rates tell us how much of a country’s local currency is needed to buy the same basket of goods and services (of comparable quality) in another country.
This requires very detailed price data. The International Comparison Program (ICP), led by the World Bank and guided by the United Nations Statistical Commission, calculates the most widely used PPP rates.4
The ICP collects local price data for thousands of goods and services — from food and clothing to education and transport — in over 170 countries.5 This work is complex and expensive, so the ICP does not collect data yearly but works with a system of “rounds.” The most recent round was in 2021, with previous ones in 2017 and 2011.
Once local price data is collected, the ICP calculates the cost of each country’s “standardized” basket of goods and services in its local currency. This basket represents what people typically consume, considering cultural differences while comparing similar items. As you can imagine, designing this basket is a complex task because goods and services popular in one country may only be consumed rarely, if at all, in another. We discuss these challenges further in the appendix.
PPP rates are then determined by comparing the cost of these baskets across countries. This is done by dividing the basket’s price in each country (in local currency) by what was found for a chosen benchmark country. In theory, any country can be used as the benchmark. In practice, the United States is almost always used.
Using the US dollar as the benchmark currency means that PPP rates tell us how much local currency is needed to match the purchasing power of one US dollar spent in the United States.6
Dividing local currency amounts by these PPP rates converts them into a common unit — international dollars — which allows for direct comparisons of purchasing power across countries.
Wherever it is “spent,” one international dollar buys the same goods and services as one US dollar would in the United States.
Adjusting for changes in prices over time
As mentioned earlier, the purchasing power of money depends not only on where it is spent but also when.
Prices change over time. The products you see at the supermarket today don’t have the same price tag as they did some years ago. Many readers will be used to seeing prices generally increasing over time — inflation — although periods of falling prices (deflation) also occur. Here, we’ll use “inflation” to describe price changes in both directions.
Economic data is initially recorded in “current” prices, meaning the actual prices observed at the time of measurement. But if we want to compare figures across different years, we must adjust for inflation.
Overall, the process is similar to how adjustments for differences in the cost of living between countries are made using PPPs. The goal is to make values comparable in terms of what people can actually buy, by benchmarking them to the changing price of a representative basket of goods and services.
Different baskets of goods are used depending on which part of the economy is being measured. The Consumer Price Index (CPI) — a very common measure of inflation — tracks the prices consumers pay for consumer goods and services.7 Each country has a basket tailored to the products most relevant to its economy.8 The idea is that by comparing the cost of this basket at different times, we can measure how much prices have risen or fallen.
Once we know how much prices have changed, we can “deflate” figures, turning current price figures into “constant” prices. Constant prices express values in terms of the purchasing power in a chosen base year. This allows us to compare figures over time in terms of what they can buy.
You can read more here:
How are incomes adjusted for inflation?
Adjusting incomes for inflation is crucial if we want to learn how standards of living are changing. How is this adjustment done?
By combining these two adjustments — for differences in living costs across countries and inflation over time — we can express data in international dollars at constant prices.
This allows us to compare economic values in a way that better reflects their real purchasing power across both time and place.
One of the main reasons we adjust economic data into international dollars is to make incomes comparable across countries. This matters especially for our understanding of global inequality.
The chart below compares GDP per capita for the United States and four selected countries in 2023 using two measures: international dollars (adjusted for differences in local prices using PPP rates) and market dollars (local currencies converted to US dollars using market exchange rates).
Since the US is the benchmark country for calculating PPP rates, its GDP per capita is the same in both measures. For the other countries shown, GDP per capita is considerably higher when measured in international dollars.
This illustrates why international dollars are so important: they help us see what people can buy at different income levels.
Using market dollars to compare incomes across countries understates people’s real income in countries where local prices are often much lower than in the US. This can make these countries appear poorer than they actually are, based on what people can afford locally.
Because prices are generally lower in poorer countries, focusing on market dollars exaggerates income disparities between poorer and richer countries. For some countries, the difference is particularly large.
Take India, for example. Its GDP per capita is almost 30 times lower than that of the US in market dollars. But when we adjust for differences in living costs, the gap shrinks to about eight times lower. For Burkina Faso, the difference is even starker. Its GDP per capita is 83 times lower than that of the US in market dollars, and 30 times lower after adjusting for differences in living costs.
While measuring GDP per capita in international dollars reduces the income gaps we see, it does not eliminate them. Global inequality remains large, even after accounting for what people can buy locally.
Much of what we know about global poverty, inequality, and progress depends on our ability to compare economic data across countries and over time. International dollars make those comparisons possible. They are a fundamental tool for measuring how everyday reality differs for people around the world, and how this is changing.
The “rounds” of the International Comparison Program
The International Comparison Program (ICP) doesn’t collect global price data yearly. Instead, it conducts the work in “rounds.” The most recent round was in 2021, with previous ones in 2017 and 2011.
When converting economic data into international dollars, the choice of ICP round to adjust for differences in living costs is, in principle, separate from selecting the base year for inflation adjustments. But in practice, the same year is usually chosen for both.
The 2021 and 2017 rounds share the same core methods, but there are differences in the number of participating countries, how the standard basket of goods is defined, and the addition of new data sources. These updates can lead to more accurate purchasing power parity (PPP) estimates, but they also mean that PPPs from different rounds are not always directly comparable.
Part of the challenge of comparing PPPs across rounds is that two factors are operating at the same time. First, changes in PPPs can come from improvements in data collection and methods used by the ICP, such as new price surveys and better data quality. Second, the change in PPPs reflects actual changes in relative price levels between countries. Inflation happens at different rates in different countries. In part, such changes are accounted for by the inflation adjustment made when converting to international-$, as discussed above. However, the way PPP rates are calculated means that the change in PPPs doesn’t exactly track the various countries’ inflation rates.
For more details on methodology changes across ICP rounds, visit the frequently asked questions on the World Bank ICP website.
Challenges and limitations of PPPs
PPP adjustments are very useful for comparing purchasing power globally, but they have important limitations. Calculating PPPs is a huge statistical undertaking; the challenges are well-documented in the academic literature.9
A central challenge is that PPPs rely on gathering accurate price data for a wide range of goods and services across many locations. However, many countries, particularly low-income ones, lack the resources and infrastructure to collect high-quality price data. To fill gaps, the International Comparison Program estimates missing values by extrapolating from regional averages or by relying on data from large urban areas. However, this can introduce bias, as prices in cities tend to be higher than in rural areas.
Even when price data is available, identifying a single “representative” price for each item in every country is difficult. Prices can vary widely within the same country, depending on availability and seasonal fluctuations.
A related issue is that it is difficult to define a comparable basket of goods and services, as consumption patterns vary across countries. Agreeing on broad categories like “food” might be straightforward, but specifying the exact items to include is much harder. Consumption habits, product availability, and quality standards vary widely. In practice, the items that should be included in the basket of goods produced and consumed in Sweden would look very different from those in Saudi Arabia.
Beyond these technical challenges, there is a more fundamental issue. PPPs are calculated at the country and regional levels, but the goods and services consumed are not necessarily the same in each place. Comparing prices globally means including a broad range of items, even for things rarely consumed in some countries. Economists Angus Deaton and Alan Heston describe an extreme case: a rural worker in Ethiopia might consume teff, while a worker in Thailand eats rice. But it’s hard to find rice in Ethiopia and teff in Thailand, making direct price comparisons impossible. Similarly, many items consumed in the US or other rich countries might not exist or be hard to find in poorer countries. Although PPPs are designed to reflect local living costs, they are still influenced by global price structures, sometimes in ways that don’t fully capture real differences between economies.
The ICP continues to refine its methods with each new round, but many of these challenges remain. Because of these limitations, it is often useful to complement PPP-adjusted data with other indicators that are not reliant on these. For example, multidimensional poverty estimates offer valuable insights alongside monetary poverty estimates, helping capture different aspects of deprivation.
Why not just use exchange rates?
At first glance, converting local currencies into a common currency (say, US dollars) using exchange rates might seem like a straightforward way to compare incomes and purchasing power across countries. After all, exchange rates tell us how much of one currency can be traded for another.
There are good reasons to consider this approach in some cases. Exchange rate data is widely available, and conversions are easy to implement. In fact, exchange rates are the appropriate choice for many types of international comparisons, such as when comparing investment flows, foreign aid, remittances, or international trade data like the value of exports and imports, where global market values and financial transactions are central.
But exchange rates are not the right tool when the goal is to compare what money can buy in countries with very different economies and income levels.
In general, richer countries tend to have higher prices, and poorer countries often have lower prices — a phenomenon known as the Penn or Balassa-Samuelson effect.10 One main reason is the cost of the so-called “nontradable” goods and services — things that must be consumed where they are produced and can’t be traded in international markets. These include, for example, housing, construction services, a hotel stay, and public health care, which are typically more expensive in wealthier countries.
Since exchange rates do not account for differences in local price levels, they fail to capture these variations in purchasing power. In addition, exchange rates can fluctuate for many other reasons unrelated to living standards, such as trade policies, speculation, or capital flows. This can create a disconnect between currency conversion rates and what people can buy in different countries.
In contrast, international dollars are specifically designed to reflect the differences in local living costs, making them a better tool for global comparisons.
Acknowledgments
This article is based on a previous article by Esteban Ortiz-Ospina and Marco Molteni. We thank Bastian Herre, Edouard Mathieu, and Hannah Ritchie for providing feedback.
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Bertha Rohenkohl, Joe Hasell, Pablo Arriagada, and Esteban Ortiz-Ospina (2025) - “What are international dollars?” Published online at OurWorldinData.org. Retrieved from: ' [Online Resource]BibTeX citation
@article{owid-international-dollars,
author = {Bertha Rohenkohl and Joe Hasell and Pablo Arriagada and Esteban Ortiz-Ospina},
title = {What are international dollars?},
journal = {Our World in Data},
year = {2025},
note = {
}
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