Exchange Rate Indices (ERIs)
Between the Bretton Woods Agreement in 1944 and the currency realignment of the Smithsonian Agreement in 1971, the US dollar provided one benchmark against which changes in the value of other currencies could be measured. This was because up to that time, the value of most currencies remained fairly stable in terms of the dollar, and significant "step" changes to exchange rates were infrequent and confined. Since 1970, however, there have been much larger movements in exchange rates and it can no longer be assumed that changes in rates against the dollar accurately indicate the overall change in the exchange rate for a currency.
To measure the overall change in the exchange value of a currency, a weighted average of the movements in cross-exchange rates against a basket of other currencies can be used, with the weights reflecting the relative importance of the other currencies, as measured by trade flows between the relevant countries.
To reflect changing trade flows, effective exchange rate indices (ERIs) with different currency, weight compositions and methodologies have been introduced. On 1 January 1977, an ERI relating to 1972 trade flows (formerly 1969 trade flows) with a base date of 18 December 1971 (i.e. the date of the Smithsonian Agreement) was inaugurated. This was followed on 2 February 1981 by an index relating to 1977 trade flows in all goods and with a base year of 1975 = 100. This was replaced on 3 January 1989 by an index relating to weights derived from disaggregated trade flows in 143 manufactured products in 1980, and with a base year of 1985 = 100. This was subsequently updated to a base year of 1990 = 100 (see below for further details).
