Does the Russia-Ukraine war lead to currency asymmetries? A US dollar tale

Abstract

We examine the impact of the Russia-Ukraine war on the value of global currencies against the US dollar (USD) using event study methodology and market model estimates. We show that the Russia-Ukraine conflict had a negative impact on the value of the global currencies; however, a region-by-region analysis shows that while European currencies (particularly the Russian rouble, Czech koruna, and Polish zloty) depreciated against the USD, Pacific currencies appreciated significantly, and the currencies of the Middle East and Africa (ME&A) are insignificant. We also show that due to the financial and economic sanctions imposed on Russia, as well as Poland and the Czech Republic's proximity to the war zone, their currencies have weakened significantly against the USD. Furthermore, the Russian Central Bank's announcement to peg the rouble with gold, has had a significant positive impact on the pan-American, European (particularly the Russian rouble and the Polish zloty), and ME&A currencies. The analysis reveals a group of currencies that are unaffected by exogenous shocks. Incorporating these stable currencies into a portfolio would reduce the risk of volatile currencies. Future research can help gain additional insights by combining them with other major currencies such as the Chinese yuan, Japanese yen, British pound, and euro.