NEER vs REER | Nominal Effective Exchange Rate & Real Effective Exchange Rate
NEER tells us how much a country's currency is worth compared to multiple foreign currencies.
REER adjusts NEER for inflation differences b/w country
NEER vs REER | Nominal Effective Exchange Rate & Real Effective Exchange Rate Understanding NEER and REER in the Simplest Way Imagine you are traveling and exchanging money. You want to know how strong your currency is compared to other countries. This is where NEER and REER come in! 1. Nominal Effective Exchange Rate (NEER) – "How Strong is My Currency?" What is NEER? NEER tells us how much a country's currency is worth compared to multiple foreign currencies. Example: Let’s say India trades mainly with the US and China , and: $1 = ₹80 (US Dollar) 1 Chinese Yuan = ₹10 India trades 60% with the US and 40% with China . Now, NEER is the average exchange rate based on trade importance. If the rupee strengthens (e.g., $1 = ₹75), NEER increases → Rupee is stronger . If the rupee weakens (e.g., $1 = ₹85), NEER decreases → Rupee is weaker . Key Point: A higher NEER = Rupee is stronger, but exports become more expensive . A lower NEER = Rupee is weaker, but exports become cheaper . 2. Real Effective Exchange Rate (REER) – "Is My Trade Competitive?" What is REER? REER a…
