The study examines how financial and economic sanctions imposed on Russia during the 2022 invasion of Ukraine affected global currency markets, particularly in relation to the U.S. dollar. The authors investigate whether geopolitical uncertainty and financial restrictions led to asymmetric effects across different currencies, reflecting the uneven impact of the conflict on global economies.
To explore these effects, the researchers employ an event study methodology, analyzing exchange rate data from International Monetary Fund (IMF) member countries. Two key moments serve as focal points: the onset of the Russia-Ukraine war in February 2022 and the Russian Central Bank’s announcement of a ruble-to-gold peg in March 2022. By examining how currencies across various regions reacted, the study assesses the extent of vulnerability and resilience in different economies.
The findings highlight a stark divergence in currency performance. European currencies, including the Russian ruble, Czech koruna, and Polish zloty, depreciated significantly against the U.S. dollar, largely due to their economic proximity to the conflict and exposure to financial sanctions. In contrast, Pacific region currencies demonstrated resilience, appreciating during the same period. The ruble-to-gold peg stabilized Russia’s currency rather briefly and also had a notable positive spillover effect on certain other currencies. However, while currency markets displayed less immediate volatility compared to stock markets, the study highlights the general economic instability caused by the war.
From a policy standpoint, the authors’ advice is primarily investor-focused: because a distinct set of currencies proved largely immune to the Russia-Ukraine shock (resilient Pacific and selected ME&A currencies), incorporating these “stable” units into an international portfolio can hedge against war-related volatility and lessen overall risk exposure.
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