What Is a Currency Crisis?

The concept of currency crisis is narrow and broad. A narrow currency crisis corresponds to a specific exchange rate system (usually a fixed currency crisis exchange rate system), which means that countries that implement a fixed exchange rate system are very passive (such as when economic fundamentals deteriorate, or In the case of a strong speculative attack), the country's exchange rate system was adjusted to adopt a floating exchange rate system, and the exchange rate level determined by the market was much higher than the level intended to be maintained (the official exchange rate). The impact of exchange rate changes is difficult to control and intolerable. This phenomenon is a currency crisis. Broadly speaking, a currency crisis refers to the phenomenon that the exchange rate's fluctuation range is beyond the tolerance of a country.

Currency crisis

In the era of globalization, as the national economy and

According to historical experience, the outbreak of a currency crisis usually takes a long time to accumulate energy and is finally detonated by one or more factors. Comprehensive foreign experience and lessons, the main measures to deal with the currency crisis are the following:

Due to the different national conditions and political, economic, and external environments, the methods and means for coping with the crisis are quite different. but,

Since the 1970s, the currency crisis theory has been one of the focus of the theoretical community, and the number of theoretical and empirical literature on currency crisis has increased dramatically. Here, this article makes a brief review of the existing theoretical literature on currency crisis, summarizes the existing theoretical results, and compares them. Because this article summarizes theoretical development, it does not involve empirical research.

I. The first generation currency crisis theory

Example 1 The baht storm in 1997. Its seriousness is manifested in two aspects: on the domestic side, the Thai economy will face a series of austerity measures in the short term. Tax increases, price controls, and monetary contraction will all be used, and the reduced economic growth rate will be further reduced; On the one hand, the baht storm spread to neighbouring countries such as Malaysia, Indonesia and the Philippines. All of these countries experienced a double-decline in the exchange rate of the stock market. Comparing the exchange rate against the US dollar at the end of June, the Thai baht fell by more than 36 (a drop of 33%) in early September, the Malaysian ringgit fell to 2.94 (a 17% decline), the Philippine peso 31.70 (a 20% decline), and Indonesia Shields passed 3000 (a drop of nearly 24%). One stone struck the millennial waves, affecting all aspects of Thai and foreign economies.

Example 2 When the benchmark exchange rate between the British pound and the European exchange rate mechanism was speculatively attacked in the fall of 1992, it was accompanied by the Italian lira. On September 15th, the year that history called "Black Wednesday", the British pound and the Lira both withdrew from the European exchange rate mechanism. Subsequently, the Irish pound and the French franc, which remained in the European exchange rate mechanism, were attacked, and the exchange rate fluctuated sharply.

Example 3 When the Mexican peso depreciated at the end of 1994, the currencies of Argentina, Brazil, and the Philippines in Southeast Asia fluctuated strongly against the US dollar. Later, exchange rate turbulence also emerged in South Africa, which is far from the Horn of Africa.