Navigating currency volatility in West Africa: the role of digital currency uncertainty

Purpose This study examines the dynamic relationship between digital currency uncertainties and the volatility of West African fiat currencies. This study explores how shocks from cryptocurrency markets and central bank digital currency (CBDC) development are transmitted to regional exchange rate behavior. Design/methodology/approach A time-varying parameter vector autoregressive (TVP-VAR) model is employed to analyze the return and volatility spillovers between eight West African fiat currencies and three global digital uncertainty indices: cryptocurrency price uncertainty (UCRY_Px), cryptocurrency policy uncertainty (UCRY_Po), and CBDC uncertainty (CBDCUI). The sample period spans November 27, 2015, to June 30, 2023. Findings The return and volatility networks exhibit moderate and comparable connectedness. UCRY_Px and UCRY_Po are net transmitters on average, although UCRY_Po is marginal in the volatility network. CBDCUI receives return shocks but episodically transmits volatility shocks. Most currencies are net receivers, with exposure varying over time and intensifying during heightened uncertainty. Originality/value This study is among the first to quantify spillovers from both cryptocurrency-related and CBDC-related uncertainties to African currencies using a time-varying model. These findings provide practical insights for financial regulators and policymakers seeking to strengthen currency resilience and build robust digital finance frameworks for emerging markets.