Currency Crises in Emerging - Market Economies: Causes, Consequences and Policy Lessons

Abstract

Currency crises have been recorded for a few hundreds years but their frequency increased in the second half of the 20th century along with a rapid   expansion of a number of fiat currencies. Increased integration and sophistication of financial markets brought new forms and more global character of the crises episodes.

The consequences of currency crises are usually severe and typically involve output and employment losses, fall in real incomes of a population, deep  contraction in investment and capital flight. Also the credibility of domestic economic policies is ruined. In some cases a crisis can serve as the economic and political catharsis: devaluation helps to temporarily restore competitiveness and improve a current account position, the crisis shock brings the new, reformoriented government, and politicians may draw some lessons for future.