How risky are EM currencies? Economists at Commerzbank analyze which currencies are more vulnerable to a coming crisis of the financial system.

For currencies with high-interest rates, central banks have more room to cut rates

“It would be presumptuous to explain, for example, the negative performance of LatAm currencies with inherently higher risk. I rather think one has to state a very simple correlation: For currencies with high-interest rates, central banks have more room to cut rates. Thus, if you want to arm yourself against a coming crisis of the financial system, you have to get out of such currencies.”

“Among the biggest losers, tragically, are the currencies whose central banks have so far pursued a particularly sound monetary policy and have been particularly aggressive in raising their key interest rates in response to the global inflation shock.”