The Central Bank of Iceland has revised the weights of currencies in the basket that the Bank uses to calculate the exchange rate index of the króna. The weights are determined on the basis of Iceland's external trade in 2002. The last review was made in July 2002. Revised currency weights and the changes from the previous weights are shown in the accompanying table. The revised basket will be used to calculate changes in the exchange rate index as of tomorrow, July 4, until the next review at a similar time next year.

The weights are determined on the basis of the composition of Iceland's external trade during the previous year. The aim is for the basket to reflect as closely as possible the composition of Iceland's external trade in both goods and services. Main changes from the previous basket are that the weight of the euro has increased by 2.0% and the weight of the Swiss franc has decreased by 0.8%. The increased weight of the euro is explained by its larger share in goods exports and trade in services, and by a change in the treatment of trade with Eastern Europe. The decrease in the weight of the Swiss franc is largely explained by lower goods exports to Switzerland, but other trade with Switzerland also contracted in 2002.

The method of calculating the currency basket is unchanged with one exception. In previous years, trade with Eastern Europe has been assigned to the US dollar and euro in equal shares. Since these countries, apart from Russia, are at present much more closely linked to the euro than to the US dollar, assigning trade with those countries to the euro is considered to give a better reflection of their impact on the effective exchange rate of the króna. This change increases the weight of the euro by 0.11% with a corresponding reduction in the weight of the US dollar. Trade with Russia is still assigned to the US dollar and euro in equal shares.

For further information contact Arnór Sighvatsson, Deputy Director, Economics Department, Central Bank of Iceland, tel. +354 569-9600.

Composition of currency basket, effective July 4 2003

Percentage share based on external trade in 2002

Change from

Country

Currency

Export weight

Import weight

Weight

prev. Basket

USA

USD

22.17

27.29

24.73

-0.10

UK

GBP

14.10

10.59

12.35

-0.43

Canada

CAD

1.33

0.84

1.09

-0.14

Denmark

DKK

7.56

8.93

8.24

0.08

Norway

NOK

6.04

6.78

6.41

-0.37

Sweden

SEK

1.71

5.12

3.42

-0.06

Switzerland

CHF

1.51

0.91

1.21

-0.80

Euro region

EUR

42.38

35.76

39.07

1.99

Japan

JPY

3.20

3.78

3.48

-0.17

Total

100.00

100.00

100.00

0.00

North America

23.50

28.13

25.82

-0.24

Europe

73.30

68.09

70.70

0.41

EU

65.75

60.40

63.08

1.58

Japan

3.20

3.78

3.48

-0.17

No. 11/2003
3. July 2003