EXCHANGE-RATE VOLATILITY AS A FINANCIAL-SECURITY RISK

Abstract. Exchange-rate volatility, the variability of a currency's value in either direction, is usually discussed as a macroeconomic or trading problem. This article treats it as a financial-security risk that operates at the level of households, firms, banks and the state. Drawing on the academic literature and on documents from the IMF, the World Bank and national central banks, it argues that volatility becomes dangerous when it meets specific vulnerabilities: currency mismatches, thin reserves, financial dollarization and weak institutional credibility. Short case evidence from Turkey, Sri Lanka, Lebanon and Uzbekistan illustrates the argument but does not test it. The article closes with policy implications and a statement of its limitations.