When the Brazilian real stumbles or the Chinese yuan strengthens, the ripple travels far beyond currency traders’ screens; it strikes at the heart of the economic performance of nations belonging to the Brazil, Russia, India, China, South Africa (BRICS) bloc.
That’s the central premise of research by recent NWU PhD graduate Dr Goitsemodimo Abel Molocwa, whose recent investigation into the BRICS bloc unpacks how fluctuations in exchange rates tilt the scales of growth.
“The relationship between exchange rates and economic growth has always been a moving target,” said Dr Molocwa in an interview. “I wanted to test whether that movement follows a predictable rhythm or not.”
His study, spanning data from 1994 to 2022, analysed the exchange rate-growth nexus in Brazil, Russia, India, China and South Africa (the original BRICS nations)
The ups and downs of currency swings
The results suggest a compelling message: currency appreciation lifts growth while depreciation, especially beyond certain thresholds, can drag economies down.
“In the long run, appreciation is consistently linked with economic growth,” Dr Molocwa explained. “But depreciation, when it crosses specific limits, can have significant negative effects. The pain isn't always immediate, but it’s measurable.”
One of the key findings is that the impact of exchange rate fluctuations is not symmetrical. A little gain helps. A little loss hurts more. The study also found that high interest rates remain a consistent drag on growth, while trade openness provides a supportive tailwind.
“Appreciation helps. Depreciation hurts. And the scale of depreciation matters,” he said. “The models confirmed that the relationship is far from linear.”
Inflation, meanwhile, played a more unpredictable role, at times dampening growth and in other instances showing negligible or even positive associations, depending on the model used.
Findings have practical application
Beyond diagnosis, Dr Molocwa offers prescriptions for BRICS policymakers: adopt managed exchange rate regimes, coordinate monetary policies and diversify foreign reserves. “Stability in currency regimes is not just a nice-to-have,” he said. “It’s an economic necessity.”
In an era where BRICS seeks to recalibrate its global role, even considering a common currency, Dr Molocwa’s research provides timely insight into the hidden mechanics of economic performance.
“This research,” he stressed, “is not just academic. It’s a guidepost. Policy decisions that ignore the signals embedded in exchange rate behaviour do so at a cost.”
Dr Goitsemodimo Abel Molocwa
