Currency Crisis
A Currency Crisis is a capital-flight financial crisis in which there is sell-off of a currency.
- AKA: Balance of Payments Crisis.
- Context:
- It can (typically) include one or more Currency Devaluations.
- Example(s):
- …
- Counter-Example(s):
- See: Foreign Exchange, Fixed Exchange Rate, Speculative Attack, Balance of Payments, Devaluation, Foreign Reserves.
References
2014
- (Wikipedia, 2014) ⇒ http://en.wikipedia.org/wiki/currency_crisis Retrieved:2014-8-17.
- A currency crisis is a situation in which there is serious doubt as to whether a country's central bank has enough foreign exchange reserves to maintain the country's fixed exchange rate. The crisis is often accompanied by a speculative attack in the foreign exchange market. A currency crisis results from chronic balance of payments deficits, and thus is also called a balance of payments crisis. Often such a crisis culminates in a devaluation of the currency.
A currency crisis is a type of financial crisis, and is often associated with a real economic crisis. Currency crises can be especially destructive to small open economies or bigger, but not sufficiently stable ones. Governments often take on the role of fending off such attacks by satisfying the excess demand for a given currency using the country's own currency reserves or its foreign reserves (usually in the United States dollar, Euro or Pound sterling). Currency crises have large, measurable costs on an economy, but the ability to predict the timing and magnitude of crises is limited by theoretical understanding of the complex interactions between macroeconomic fundamentals, investor expectations, and government policy. [1]
Recessions attributed to currency crises include the 1994 economic crisis in Mexico, 1997 Asian Financial Crisis, 1998 Russian financial crisis, and the Argentine economic crisis (1999-2002).
- A currency crisis is a situation in which there is serious doubt as to whether a country's central bank has enough foreign exchange reserves to maintain the country's fixed exchange rate. The crisis is often accompanied by a speculative attack in the foreign exchange market. A currency crisis results from chronic balance of payments deficits, and thus is also called a balance of payments crisis. Often such a crisis culminates in a devaluation of the currency.
1999
- (Kaminsky & Reinhart, 1999) ⇒ Graciela L. Kaminsky, and Carmen M. Reinhart. (1999). “The Twin Crises: the causes of banking and balance-of-payments problems.” In: American Economic Review, 89(3). doi:10.1257/aer.89.3.473
- ABSTRACT: In the wake of the Mexican and Asian currency turmoil, the subject of financial crises have come to the forefront of academic and policy discussions. This paper analyzes the links between banking and currency crises. The authors find that problems in the banking sector typically precede a currency crisis -- the currency crisis deepens the banking crisis, activating a vicious spiral; financial liberalization often precedes banking crises. The anatomy of these episodes suggests that crises occur as the economy enters a recession, following a prolonged boom in economic activity that was fueled by credit, capital inflows, and accompanied by an overvalued currency.