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NT dollar outcompetes Korean won this May

TAIPEI, Taiwan -- The real effective exchange rate (REER) index for the New Taiwan dollar edged up a little from a month earlier to 100.21 in May, staying lower than that of its major external trade rival South Korea's currency for the 11th consecutive month, according to the statistics released by the Bank for International Settlement (BIS).

According to United Daily News, in the same month the REER index for the Korean won showed its third consecutive monthly rise to 112.23 and its exchange rate with the U.S. dollar rose 1.28 percent, almost double the corresponding 0.69 percent of the NT dollar.

China saw the REER index for its renminbi at 114.05 in May, down 2.07 from 116.12 a year earlier.

Financial experts indicate that the nominal exchange rate is simply the price of one currency to another, and REER is the weighted average of a currency relative to an index or basket of other major currencies adjusted for inflation. The nominal exchange rate typically remains flexible while the real exchange rate reflects economic fundamentals.

The BIS started releasing the REER indices of major currencies on June 15, 2010. The competitiveness of a certain currency is negatively related to REER value. For example, the REER value of the Chinese Yuan (CNY) reversed course from the historical high of 121.2 and fell by 5.89 percent to 114.05 in May, a sign of mainland authorities' weak CNY policy aimed at stimulating exports. From March on, the People's Bank of China (PBOC) also expanded the trading band of CNY from 1 percent to 2 percent.

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