Vulnerability to a currency crisis: Lessons from the Asian experience

Currency crises are rapid outflows of financial capital in anticipation of a possible currency depreciation. inducing depletion of reserves, financial instability and subsequent economic contraction. In recent years, increasing numbers of countries have fallen victim to such crises.2 Recent examples include the Mexican crisis of 1994 and the Asian crises of 1997-98. These events and the global reverberations which followed them have added new impetus to debate on their causes. The present paper attempts to contribute to this debate. In this paper, we take a fresh look at the genesis of the Asian currency crisis with a view to informing the ongoing policy debate. The East Asian crisis first developed in Thailand and was subsequently experienced in several other East Asian countries, but by no means all. Two central questions are therefore why Thailand's crisis occurred and why some Asian countries were apparently more susceptible than others to the 'contagion' arising in its wake.