Literature on the circumstances that make currency crisis transmit contagiously across countries is present although it is relatively little. Pdf the global economic crisis and developing countries. Major financial crisis from great depression to great recession this paper is dedicated to the doyens of indian banking, dr. They also debated possible policy options for these regional economies. Chapter 4 expansion of the asian currency crisis and real. Currency crises federal reserve bank of san francisco.
In 1997, what had started as a currency crisis in thailand quickly developed into a financial and economic crisis and spread to other countries in the region. Are global shocks leading indicators of a currency crisis in viet. Hassan 1998 examined the impact of the asian currency crisis on the bangladesh economy, as well as other asian countries. A currency crisis is a speculative attack on the foreign exchange value of a currency, resulting in a sharp depreciation or forcing the authorities to sell foreign exchange reserves and raise domestic interest rates to defend the currency. This paper takes a thorough look at the 19971998 asian financial crisis, examining its major causes, the way the affected countries recovered, and their paths going forward. Based on the firmlevel data on a sample of exposed and unexposed us stocks to the asian currency crisis, we find a significant increase decrease in the crisis period bidask spreads depth and. This soon developed into fullblown crises in thailand, indo. The world economic outlook presents the imf staffs analysis and projections of economic. Such weaknesses appear to reflect the inability of lenders to use business criteria in allocating credit and implicit or explicit government guarantees against risk. The enormity of the shock is captured by the fact that in the worstaffected countries real gdp growth has turned. A reflection on its causes, consequences and policy implications ids discussion paper 367 stephany griffithjones with jacques cailloux and stephan pfaffenzeller summary this paper looks into the causes and the economic and social implications of the east asian currency crisis. The world economic outlook presents the imf staffs analysis and projections of economic developments at the global level, in major country groups classified by region, stage of development, etc.
A currency crisis is a speculative attack on the foreign exchange value of a currency, resulting in a sharp depreciation or forcing the authorities. The asian financial crisis was a period of financial crisis that gripped much of east asia and southeast asia beginning in july 1997 and raised fears of a worldwide economic meltdown due to financial contagion. Before the asian financial crisis, asian countries such as south korea, singapore, taiwan and hong kong experienced rapid growth and was often referred as the asian tiger economies. Edrc briefing notes number 10 economics and development resource center excerpted from the asian development outlook 1999. Use the free adobe acrobat reader to view a pdf file of this article. Many firms with foreign currency bonds were forced into bankruptcy. These great men handled the macroeconomic policies of the nation as governors of the reserve bank of india with. Currency crises and collapses brookings institution.
The currency markets first failed in thailand as the result of. The asian currency crisis appeared to begin in a south. The thai baht was the first currency to experience problems. Major financial crisis from great depression to great. Edrc briefing notes number 10 asian development bank. The crisis started in thailand on 2 july, with the financial collapse of the thai baht after the thai government was forced to float the baht due to lack of foreign currency to support its currency peg. Lessons from the east asian currency crisis and recovery. Mgt266 syllabus 1 3 06 uc davis graduate school of. The collapse of the mexican peso in late 1994 remains a topic. They maintained remarkably high growth rates over 7% from 1960s1990s due to rapid industrialisation. Southeast asian crisis on latin american countries. The european financial crisis the european financial crisis has a complex set of causes and reinforcing dynamics. The causes of asian currency crises munich personal repec.
Currency crisis transmission through international trade. After experiencing rapid growth throughout the 1990s, the economies relied heavily on foreign debt to finance their growth, so when the taps were turned off they struggled to meet the debt payments. The asian financial crisis was ultimately solved by the international monetary fund imf, which provided the loans necessary to stabilize the troubled asian economies. Is a currency board an answer to asias currency crisis. And what steps can be taken to prevent such crises from recurring in the future. The paper explores the view that the asian currency and financial crises in 1997 and. An introduction traditional models of currency crises suggest that weak or unsustainable economic policies are the cause of exchange rate instability. The 199798 asian financial crisis began in thailand and then quickly spread to neighbouring economies. Asia plunged as the currency crisis engulfed most of east asian countries. While each episode has its own characteristics, a number of common.
These models provide a partial explanation of the asian currency crisis. The asian financial crisis of 1997 is another wellknown example of a currency crisis. It began as a currency crisis when bangkok unpegged the thai baht from the u. An analysis of credit derivatives jessica beattie 1 duke university durham, nc march, 2000 1 jessica beattie graduated suma cum laude from duke university in 2000 with distinction honors in economics. Models of financial crisis and contagion predict that an economic crisis turns into a crisis of market liquidity in the presence of borrowing constraints, information asymmetry and risk aversion. Causes, impact, policy responses and lessons by rakesh mohan. The asian currency and economic crisis deepened over two stages, namely the currency crisis arising in 1997 and the ensuing contagion, which in 1998 then developed into an economic crisis. Selected asian economies, january 1997january 1999 january 1996 100. Currencies and asset prices in most countries dropped by as much as 30% to 40%, and even more in the harderhit countries. A customer wearing gloves holds lebanese pounds at a currency exchange store, during a countrywide lockdown to combat the spread. May 1999 interpreting the asian financial crisis excerpted from the asian development outlook 1999. The asian financial crisis involves four basic problems or issues.
Lee kuan yew, 1992 the present economic crisis proves that in choosing democracy over authoritarianism, we. Asian financial crisis 1997 explained fly malaysia. The asean currency crisis, which began with the thai baht, has highlighted doubts and problems relating to the concept of globalization itself, which has been promoted by major nations on the basis of ideas put forward by neoclassical free marketeers. The financial crisis of east asia in 1997 was largely unanticipated and was character. Lessons for poland and other transition countries, grant no. A banking liquidity b shareholders wealth c reestablishing fixed currency exchange rates in asia d dollarization of asian currencies answer. Third, success in economic and currency integration in europe shows that it is indeed possible for a region to unify the currency. The asian financial crisis, also called the asian contagion, was a sequence of currency devaluations and other events that began in the summer of 1997 and spread through many asian markets. Eddy lee the debate on the causes of the asian crisis.
Some basics of currency crises the last ten years have seen eight major currency crises, most recently in argentina, and many minor crises. For the three decades before asias financial crisis, indonesia, korea, malaysia, and thailand had an. What caused the asian currency and financial crisis. The region experienced a deep, widespread recession. Lau, stanford university 2 a brief history u the east asian currency crisis began in thailand in late june of 1997 and essentially stabilized in the last quarter of 1998 u with the exception of two currencies, the chinese yuan and the hong kong dollar, all other east asian currencies lost significant. Causes and course of currency crises in asian, latin american and cee countries. By the middle of february, all asian currencies bounced back by 20 to 40% so that many observed that the currency crisis has passed its peak. Currency crisis or foreign exchange market turbulences in viet nam 6. Twenty years ago, on july 2, 1997, the thai baht broke its peg with the u. By the imf staff the financial crisis that struck many asian countries in late 1997 did so. He suggests regulatory changes to help avoid a repeat of an asian type currency crisis.
Second, while the imf is put in charge of minimizing the risks associated with globalization and the likelihood of currency crises, corruption may make a country more vulnerable to the risks of a. This report develops an explanation of currency crises in terms of. The asian currency crisis the asian currency crisis turned out to be far more serious than the mexican peso crisis in terms of the extent of the contagion and the severity of the resultant economic and social costs. It is therefore not too surprising that no one predicted the asian crisis. It focuses on major economic policy issues as well as on the analysis of economic developments and prospects.
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