What is a currency crisis

A currency crisis, also called a devaluation crisis or an international financial crisis, is a sharp depreciation of the currency of a country. The depreciation usually comes after a period during which the exchange rate has been very stable, even fixed.

Notice on the chart the steep decline in the value of the Mexican peso relative to the dollar in 1995. In 1994, one dollar could buy about 3 peso and by the end of 1995 one dollar bought more than 6 peso. The value of the peso declined in half. That is a currency crisis.

Another example is the devaluation of the Indonesian rupiah in 1997/98. The value of the rupiah relative to the dollar declined three times.

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