June 2012 – Note on the revision of South Africa’s nominal and real effective exchange rate indices
L Motsumi, P Swart, H Lekgoro, V Manzi and B de Beer
Last Modified Date:
2020-10-01, 09:31 PM
Quarterly Bulletins > Articles and Notes
Introduction Nominal effective exchange rate indices are widely used to track the external value of a currency against a weighted basket of currencies, whereas real effective exchange rate indices serveas a yardstick of changes in a country’s international competitiveness of production over time.As a result of gradual changes in trade patterns between countries, it is standard practice toperiodically revise the bilateral trade weights of the countries considered in the computationof the weighted average effective exchange rate to reflect the most recent trade patterns. Theglobal financial crisis in 2008 had a visible impact on global trade patterns and resulted in thereconfiguration of the established trade hierarchy.This note briefly describes the revision of the weights and trading-partner countries used inthe computation of South Africa’s nominal and real effective exchange rates. To this end, theBalance of Payments Division of the Bank has revised the calculation of the nominal and realeffective exchange rate indices using more up-to-date bilateral data for trade in manufacturedproducts during the period 2010 to 2012.Further detail about the revision is provided below. As before, the focus in the construction ofthe effective exchange rate indices is on trade in manufactured goods and competitivenessin manufacturing.