U tNTIL comparatively recently the normal method of quoting exchange rates has been to use a numeraire currency, usually the pound or the dollar. During the periods of the gold standard and of fixed exchange rates following Bretton Woods this was perfectly valid. However, the widespread adoption of floating exchange rates in the I 970s has made the numeraire currency method to some extent misleading, and consequently a new method of quoting exchange values has been developed which gives a better indication of the overall value of a currency: this is provided by a currency's exchange rate which is a weighted average of its movements against all other currencies. No one has yet, however, extended this new method back to other periods of widespread floating exchange rates and this is the object of the present study: to begin this process by calculating an effective exchange for the pound in the I930S. The need for this is clear if one considers the example of the period I 932-4 in which the pound appreciated 40 per cent against the dollar while depreciating I5 per cent against the franc.2 The general heterogeneity of all exchange-rate movement in this period is illustrated by Fig. I which plots the paths of eight exchange rates from I93I III to I935 I inclusive (I929-30 = ioo). When one also considers that at the same time the currencies of Australia, Egypt, Finland, and India fluctuated less than I per cent against the pound it becomes rather dubious to express the pound in terms of any single numeraire currency. Moreover the interwar years are especially interesting since the evidence of the volability of exchange rates in this period has long been used as one of the standard arguments against flexible rates, initially by Nurkse3 and since then by numerous others. An effective exchange must surely provide a more suitable indication of the overall stability of a currency.