Exchange Rate Dynamics and Its Spillover Effect among the BRICS Nations

The recent financial crisis in the United States, followed by Europe’s debt crisis, has significantly impacted global economic performance, particularly in the financial sector. Globalization has led to increased interdependence and growth in international trade. This paper examines exchange rate return spillovers and connectedness among BRICS countries’ currencies against the US Dollar using Diebold and Yilmaz’s methodology. By analyzing weekly data from April 2004 to March 2023, we find low spillover levels between these currency pairs. The Indian Rupee is identified as a net transmitter, while the South African Rand is a net receiver. Notably, the Indian Rupee and Chinese Yuan show no Granger causality with other currencies, whereas the Russian Ruble, Brazilian Real, and South African Rand display univariate relationships. These insights can aid traders, portfolio managers, policymakers, and market participants in identifying volatility sources and making informed investment decisions.