HC Deb 17 January 1979 vol 960 cc778-9W
Mr. Lawson

asked the Chancellor of the Exchequer what has been the percentage change in the effective exchange rate for the £ sterling over the past 12 months and since the end of February 1974 (a) on the basis of a total trade-weighted index, (b) on the basis of an export trade-weighted index, and (c) on the basis of an import trade-weighted index.

Mr. Robert Sheldon:

There is no unique way of calculating trade-weighted effective exchange rate indices; different methods will be appropriate for different

Percentage change between:
End-February 1974 and 29th December 1978 3rd January 1978 and 29th December 1978
(i) MERM weights … … … -24½ -3
(ii) Multilateral total export competition weights … … … -25 -4
(iii) Multilateral export share weights … … … -26½ -5½
(iv) Bilateral export weights … … … -20 -3
(v) Bilateral import weights … … … -24 -4
(vi) Total bilateral trade weights … … … -22 -3
Notes:
(i) This is the index which is published daily by the Bank of England and is used in questions about the effective rate for sterling or about exchange rate policy. It is the most appropriate single indicator of an "average "exchange rate. It is based on weights based on the IMF's multilateral exchange rate model, and attempts to answer the question" what unilateral change in sterling's exchange rate against all other currencies would have had the same effect on the trade balance as the mix of currency changes which actually took place? ". In principle it would be possible also to use the MERM to derive weights needed for answering the question "What unilateral change in sterling's exchange rate against all other currencies would have the same effect on exports (or on imports) as the mix of currency changes which actually took place?" but the weights are not readily available.
(ii) Based on weights used by the IMF research department in calculating the indices of price and cost competitiveness published in International Financial Statistics. These weights reflect the importance of competition from each other country's exports in each of the United Kingdom's export markets, the importance of competition with domestic production in each country, and the importance of each market to the United Kingdom. The weights are based on the 13 most important countries only, as compared with 20 used in the MERM.
(iii) Based on the weights used in the United Kingdom's index of relative export prices of manufactures published in Economic Trends. These weights reflect the importance of competition from each other country's exports in each of the United Kingdom's export markets and the importance of each market to the United Kingdom; but since they are derived for use in a trade share model they do not reflect competition with domestic production in each market. They are calculated for the most important 10 countries.
(iv) Based on weights derived from the share of United Kingdom exports of manufactures going to each country in 1975. These weights take no account of competition in third markets—they give, for instance, a rather lower weight to Japan than do the three methods above, since Japan is more significant as a competitor in third markets than it is as a direct export market.
(v) Based on weights derived from the share of United Kingdom imports of manufactures coming from each country in 1975.
(vi) Based on weights derived from the share of total United Kingdom bilateral trade with each country. These are a weighted average of the weights in (iv) and (v).