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. What was initially referred to as the thailand crisis became the asian crisis. Chapter 1 causes and characteristics of the asian currency. What caused the asian currency and financial crisis. Asian crisis in july 1997, the turbulence in the asian currency markets began.
Impact of the asian crisis on hong kong on october 23, 1997, prices in the hong kong stock market declined by 10. For china, sound economic fundamentals, coupled with tight regulation on capital account transactions, have helped minimize the negative repercussions from the crisis. A crisis currency is simply an asset that people go to in times of stress. They include the need for better market regulation, greater transparency and improved corporate governance. Jul 18, 2007 at its heart, the asian crisis was a banking crisis brought on by banks and their customers taking on too much foreign currency risk. The asian financial crisis was ultimately solved by the international monetary fund imf, which provided the loans necessary to stabilize the troubled asian economies.
A great deal of effort has been devoted to trying to understand its causes. Table 2 shows change in some of the crisis indicators in the five east asian countries and india. Why currency mismatches matter earlier financial crises provide ample evidence of the role currency mismatches have played in them. This is consistent with the imf classification of their. Major financial crisis from great depression to great. Lessons for asia from the 1994 mexican currency crisis the value of the thai baht has gone through repeated fluctuations since last year. The case of india pami dua1 department of economics delhi school of economics university of delhi, delhi 17 india and arunima sinha department of economics columbia university, new york, ny usa abstract this paper tests and explains the impact of the east asian crisis on indias exchange rate. Using daily data from the asian currency crisis, the present paper examines highfrequency contagion effects among six asian countries. But southeast asian governments were unwilling to delink their currencies from the dollar. Lessons from the east asian currency crisis and recovery. The role of financial supervision in restoring growth takatoshi ito institute of economic research hitotsubashi university working paper series vol. In fact, trade and financial channels spread contagion during the mexican peso crisis, just as they did in the asian crisis two years later. Due to the integration of southeast asian economies, the excessive lending by the local banks across the countries, and the susceptibility of all these countries to massive fund out. Highfrequency contagion of currency crises in asia ito.
This paper addresses two issues raised by this recent experience. Postcrisis exchange rate policy in five asian countries. With the economies having pegged their currency on the dollar, the value of their exports began to dwindle as early as 1995. Immediate causes of the crisis, and its early development1 a. Now that the asian crisis is behind us, what lessons can we draw from the experience, and how can we use this knowledge to forestall future. Request pdf asian currency crisis and the international monetary fund, 10 years later. Even two years after it ended, anxiety still loomed over global financial markets. What is south east asian currency crisis authorstream.
Asian currency crisis and the international monetary fund, 10. These great men handled the macroeconomic policies of the nation as governors of the reserve bank of india with. Kwohting li professor of economic development department of economics. First round was a precipitous drop in the value thai baht malaysian ringgit philippine peso indonesian rupiah second round began with downward pressures hitting taiwan dollar south korean won brazilian real singaporean dollar hong kong dollar. The collapse of the thai baht in july 1997 was followed by an unprecedented financial crisis in east asia, from which these economies are still struggling to recover. The combination of these factors initiated the east asian crisis in thailand. The currency crisis that startedin thailand spread to the neighboring countries of southeast asiaand eventually triggered serious crisis in the currency and financialmarkets of south korea which had just recently joined the ranksof the advanced economies of the world. Mar 30, 2011 the asian currency crisis started when thai businesses began to default on the loans theytook out in order to finance investments in commercial and residential property hill, 2006, p. Currency crises federal reserve bank of san francisco. As germany raised its interest rates to fight inflation following reunification in the early. By the imf staff the financial crisis that struck many asian countries in late 1997 did so with an unexpected severity. The asian currency crisis started when thai businesses began to default on the loans theytook out in order to finance investments in commercial and residential property hill, 2006, p.
An asymmetric information view of the asian crisis the. 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. Documents in econstor may be saved and copied for your personal and scholarly. It is the sharpest financial crisis to hit the developing world since the 1982 debt crisis. Thailand, indonesia, and south korea suffered outright recessions in 1998 and forecast growth rates in the rest of emerging asia are either negative or well below their pre crisis.
Overview a recent, comprehensive database is used to investigate the link between inward foreign direct. This memorandum provides an overview of the asian financial crisis of 199798. 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. Tokyo club papers 1999 the yen, the yuan, and the asian currency crisis vol.
Hong kong based investment bank peregrine investments ltd. If, in cases of the affected asian countries, there were strong warning signals of a heightened probability of a financial crisis prior to the 1997 crisis from such models, then there are good reasons. The asian crisis eventually reached economies as far away as russia and brazil. After laying out an asymmetric information view of the asian. Even after the asian financial crisis, russian crisis and brazilian crisis followed in 1998 and 1999, respectively. Asian currency and financial crises crawford school of public. Excessive investment in property resulted in an oversupply of availablereal estate hill, 2006, p. Financial crisis theories explaining the 1997 thai. Warr documents how the boom which preceded the crisis was not choked off by an appreciating exchange rate precisely because of the exchange rate peg. No doubt macroeconomic policies were not always perfect, but the real problems were in the financial structure more than the macroeconomic settings. Frqwhqwv 4 lqwurgxfwlrq 6 5 dwwkhurrwriwkhdvldqfulvlv 7 6 fxuuhqwdffrxqwlpedodqfhvdqgpdfurhfrqrplfixqgdphq0 wdov.
C asian financial crisis initiated by two rounds of currency depreciation in 1997. The present currency crisis and reconstruction measures are likely to bring about the following effects on the thai economy. Vxfksuhvvxuhvdqgeholhivuhsuhvhqwhgwkhxqghuslqqlqjvridvxvwdlqhg surfhvvrifdslwdodffxpxodwlrq9 uhvxowlqjlqwrshuvlvwhqwdqgvldeohfxuuhqw dffrxqwgh. The risk of such currency crises is the biggest potential problem with fixed exchange rates. The asian currency crisis apsem working papers, di991 c asia pacific press 1999 11. The asian financial crisis of 1997 is another wellknown example of a currency crisis. Time weeks beforeafter start of crisis index 100 in t1 mexican peso 1982 mexican peso 1994 chilean peso argentinian peso figures. Imf international financial statistics 3299b and world bank world tables l66t indonesia and thailand 0. Currency crises are particularly severe in the case of a fixed exchange rate a regime in which a central bank uses its tools to target the value of the domestic currency in terms of a foreign currency.
The thai baht was by all accounts the first to come under heavy selling pressure. The asian financial crisis international monetary fund. History has given us many examples of such crises, and shows that they are very disruptive for the economyand sometimes even for the world as a whole. The asian currency crisis unuwider united nations university. The asian currency crisis apsem working papers, di991 c asia pacific press 1999 3. After posting some of the most impressive growth rates in the world at the time, the socalled tiger economies saw their stock markets and currencies lose about 70% of their value.
Consideration is given to the broader issues exposed by the crisis that still need to be addressed. But instead of dying away quickly, as they did after the 1994 mexico peso crisis, they were the precursor of currency and financial crises in the. Factors and characteristics 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. Couses, policy responses, and outcomes wp998 created date. After the pegs collapsed, borrowers who had not hedged their foreign currency borrowing had difficulty servicing their debts and, in some cases, went bankrupt, thus worsening the crisis. Southeast asia had developed into a global financial crisis within the span of a year. Following an insightful paper by krugman 1998, the concept of. The east asian financial crisis is remarkable in several ways.
Thailand, indonesia, and south korea suffered outright recessions in 1998 and forecast growth rates in the rest of emerging asia are either negative or well below their precrisis level. By 1997, most of the nations were paralyzed and unable to bailout the banking and financial sector of the economy owing to the domino effect. South koreas policy responses to global economic crisis. Origins of the crisis financial crises are seldom generated by one or two isolated factors. The currency crisis in southeast asia, along with japans prolonged recession and south koreas economic troubles, has prompted questions as to whether these events mark the vaunted asian economic miracles end. When the dollar rose, consequently the asean currencies grew too, resulting in lower exports. Introduction the asian financial crisis was a period of financial crisis that gripped much of east asia beginning in july 1997 and raised fears of a worldwide economic meltdown due to financial contagion. Global implications of southeast asias currency crisis. The onset of the crisis currency attacks problems in thailand the asian crisis started with attacks on currencies in the region. A finish blow was the massive withdrawal of foreign currency. The east asian currency crisis and recovery lawrence j.
The financial crisis and market turbulence caused a steep. Its narrower objective is to identify and evaluate post crisis exchange rate policy in five of the countries. Can moral hazard explain evelopment the asian crises. For china, sound economic fundamentals, coupled with tight regulation on capital account transactions, have helped minimize the. Asian currency crisis and the international monetary fund.
The financial crisis of east asia in 1997 was largely unanticipated and was character. A financial crisis started in thailand in july 1997 and spread across east asia, wreaking havoc on economies in the region and leading to spillover effects in latin america and eastern europe in 1998. Chapter 4 expansion of the asian currency crisis and real. Nick, i want you to tell me why you think bitcoin is the new crisis currencybut first, what exactly is a crisis currency. The virulent crisis that struck five asian economies in mid1997 and 1998 raised concern about. The asian crisis began in thailand and quickly spread throughout the main asian economies. The efforts of market participants to cover previously unhedged foreign currency exposure after the onset of the crisis further weakened asian currencies. This is the list of currencies presently in circulation in asia.
Southeast asian crisisthe economic crisis of 199799 overviewunfolding of the crisis june 1997 1. The kuwaiti dinar, the official currency of kuwait, is the worlds most valued currency. The turmoil that rocked asian foreign exchange and equity markets after the middle of 1997 and that spread far afield is the third major currency crisis of the 1990s. This paper aims to integrate and synthesize key conclusions in the literature and raise. This book examines the causes and development of the asian financial crisis, with special emphasis on its lessons for china and hong kong. A currency crisis is a sudden and unexpected rapid decrease in the value of a currency. South east asian currency crisis the asian financial crisis was a period of financial crisis that gripped much of asia beginning in july 1997, and raised fears of a worldwide economic meltdown due to financial contagion. The asian financial crisis that was triggered in july 1997 was a shocker. Giancarlo corsettia, paolo pesentib, nouriel roubinic ayale university, new haven, usa and university of bologna, bologna, italy bfederal reserve bank of new york, new york, usa and nber, cambridge, ma, usa cdepartment of economics, mec 783, new york university, leonard n. 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 the crisis started in thailand known in thailand as the tom yum goong crisis. This pdf is a selection from an outofprint volume from the national bureau. This absence of currency risk, and the large spread between high domestic interest rates and low u. The paper explores the view that the asian currency and financial crises. In malaysia, the ratio of financial institutions claims to domestic gdp had.
The paper explores the view that the asian currency and. A warning tremor on may 14 this year presaged the start of massive selling in july. Major financial crisis from great depression to great recession this paper is dedicated to the doyens of indian banking, dr. Yet, a debate on the adoption of a common currency by these countries is slowly emerging especially in the aftermath of the asian crisis and after the single currency for europe, the euro, became a reality beginning 1999. Except for thailand, which reported itself as pegged to an undisclosed currency basket, none of the asian crisis countries had maintained an officially announced parity prior to the crisis. You may have noticed that a currency crisis looks a lot like a bank run. Responding to the east asian crisis world bank documents. Financialsector weaknesses each of the asean4 economies experienced a credit boom in the 1990s, that is, the growth of bank and nonbank credit to the private. The crisis hlt the most rapidly growing economies in the world and prompted the largest financial bailouts in history. The origin of exchange rate depreciation, or decline in stock prices and the affected currencies, or stock prices in the daily spillover relationship were defined and identified. Chapter 4 expansion of the asian currency crisis and real economy deterioration 1. Developments andcauses of the asian currency crises. The asian financial crisis of 1997 affected many asian countries, including south korea, thailand, malaysia, indonesia, singapore, and the philippines.
441 293 406 208 1100 1555 696 1210 60 293 1199 550 478 288 43 1536 46 433 476 1348 1252 1175 915 1358 1062 446 694 524 417 147 861 946 119 599 1496 911 459 458