The Exchange Rate Volatility During Political Protests: Event Study and the Case of Belarus

The exchange rate reacts on political protests. Market agents affected by unrest increase exchange rate volatility. This may be converted into currency devaluation if monetary authorities decide to join protesters rather than supporting the exchange rate. Based on the event study methodology, three hypotheses were tested on 1,220 event windows of 77 political protests, in 54 economies, in 2017-2022, on three points: (1) the types of political protests with the highest abnormal exchange rate volatility and currency returns; (2) the influence of protests on daily currency devaluation; (3) the effects of unrest on intraday exchange rate volatility. The findings show that the highest exchange rate volatility was in the groups of events with short duration, with a small number of participants, which were non-violent, motivated by electoral fraud, without outcomes, and in partly free countries. The highest currency devaluation was in the groups of unrest with the greatest number of protesters, lasting more than a month, and in free countries. Only rare cases prove a high statistically significant influence of protests on exchange rate volatility and currency devaluation. As the case-by-case approach is preferable, the case of Belarus, and the country’s 14 largest political protests in 2020, was studied. This showed that four-month street unrests affected the abnormal intraday volatility of USD/BYN. After two weeks of protests, market volatility would have led to devaluation, if the National Bank hadn’t intervened, and in two months of unrest, exchange rate volatility started falling.