In this era of globalization it is of great importance to have reliable methods that enable one to compare the economic situation of countries or regions. Such a comparison can be directed at (1) the “level” of welfare or some measure of the economic potential of a geographical entity, or (2) its structure of consumption or production. Key statistics which play a role are Gross Domestic Product (and its components), per capita income, industrial production, or (labour) productivity. The comparability of those statistics is to a large extent guaranteed by adherence to international guidelines such as the System of National Accounts 1993. The actual comparison, however, is frequently complicated by the fact that the value figures involved read in different currencies. Thus the first task seems to be to convert all those value figures, where necessary, into a single numéraire currency. The instrument that springs to mind here is a set of (market) exchange rates.

The comparison exercise does however not stop here. The second and more important task is to discern to what extent the value differences are “real” or “monetary”; that is, to what extent they are determined by more or less physical factors (different levels of consumption or production) or by different price systems. Put otherwise, the task at hand is to split a value difference, conventionally stated in the form of a value ratio, into a quantity index number (reflecting “real” differences between countries or regions) and a price index number (reflecting “monetary” differences between countries or regions).

Historically seen, the problem of international comparisons is cast in terms of finding appropriate currency convertors: that is, convertors which are regarded as more adequate than exchange rates.