Currency Crises

A “crisis,” according to most dictionaries, is a critical moment, an uncertain and worrisome time, an unstable situation, or a prelude to a breakdown or disaster. This chapter examines some of the more prominent modern foreign exchange crises with an eye to their cause and possible similar future recurrences. It comprises of selected documentation of these incidents. One of the examples is of Mexico in 1994 when, with an exploding trade balance, the “vigilantes” identified the Peso as “significantly overvalued” and, over the course of just a few days, withdrew “billions of dollars in international investments.” This meant a massive selling of the Peso; Mexico had to devalue its currency by 50%.