5.
In the view of the Government of the United Kingdom, the
effective rate calculation currently used by the UK Treasury and the Bank of England provides the best measure of the value of
sterling at present available. The model used in this calculation
will be explained with full technical details in an article to be published shortly in "Economic Trends". In simple terms the calculation is approximately equivalent to the movement of sterling against a basket of currencies weighted as follows:-
US dollar
Deutschemark
French franc
0.31
0.19
0.10
Japanese yen
0.08
Belgian franc
0.08
Netherlands guilder
0.06
Italian lira
0.06
Canadian dollar
0.05
Swedish krona
0.04
Swiss franc
0.03
6. The series published in the Bank of England Quarterly Bulletin is based on closing rates (ie 5 pm) so as to be consistent with other
statistical series. However, as other European markets close one or two hours earlier, noon rates provide a more reliable measure for the purpose of the guarantee. The càlculation, therefore, will be based on the noon sterling/US dollar rate and the noon dollar cross-rates in
the London market for each of the other currencies.
7. The effective rate which is thus derived is expressed as a percentage depreciation from Smithsonian parities (with an assumed central rate for the Canadian dollar of US$1 C$1). The guarantee rate, ie the average effective depreciation in the period
25 September to 31 March 1974, will be indicated as soon as possible åfter 31 March, and the Bank of England will indicate the cumulative average effective depreciation at the end of each month of the new
guarantee period.
2