Currency risk and capital accumulation

Countries with significant exchange rate variability present a high currency risk; there is a concern that this could lead to higher interest rates and therefore to a weakening of investment and potential growth. We compare OECD countries on the one hand and emerging countries (excluding China) on the other. We see that while high exchange rate variability does lead to a rise in long-term interest rates, especially in emerging countries, it does not lead to a weakening of investment. This puts into perspective the interest that central banks may have in stabilising the exchange rate.