IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Domestic Causes of Currency Crises: Policy Lessons for Crisis Avoidance

  • Helmut Reisen

The recent currency crises in Latin America and Asia have hit countries with strong macroeconomic fundamentals but weak domestic financial systems. Private capital flows, attracted by disorderly financial liberalisation and exchange rate pegs, reversed abruptly when financial-sector weaknesses became apparent. Often, domestic financial systems have proved too weak a conduit for heavy capital inflows, resulting in declining credit quality and financial vulnerability to speculative currency attacks. Developing countries are therefore advised to pay close attention to indicators of financial vulnerability, in particular to short-term debt levels as a fraction of official foreign exchange reserves, as well as to currency and maturity mismatches in private-sector balance sheets. This paper points to the avenues that can be pursued to avoid a rise in the vulnerability indicators above critical levels ... Some of these avenues are uncontroversial, but deceptively hard to implement. Good ... Les crises monétaires qui ont récemment frappé l’Asie et l’Amérique latine ont atteint des pays dotés de fondements macro-économiques solides, mais de systèmes financiers faibles. Les capitaux privés, attirés par une libéralisation financière sans contrainte et par les différentiels de taux de change, se sont retirés brusquement lorsque les faiblesses du secteur financier sont apparues au grand jour. Bien souvent, les systèmes financiers nationaux n’ont pas pu jouer correctement leur rôle d’intermédiation face à des entrées massives de capitaux. La qualité du crédit s’en est ressentie et les pays se sont trouvés vulnérables aux attaques spéculatives contre leur monnaie. Aussi faut-il conseiller aux pays en développement de surveiller étroitement les indicateurs de vulnérabilité financière, et notamment les niveaux d’endettement à court terme par rapport aux réserves officielles en devises, ainsi que les déséquilibres en devises au passif et à l’actif et les décalages des échéances ...

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Our checks indicate that this address may not be valid because: 403 Forbidden ( [303 See Other]--> If this is indeed the case, please notify ()

Download Restriction: no

Paper provided by OECD Publishing in its series OECD Development Centre Working Papers with number 136.

in new window

Date of creation: Jun 1998
Date of revision:
Handle: RePEc:oec:devaaa:136-en
Contact details of provider: Postal: 2 rue Andre Pascal, 75775 Paris Cedex 16
Phone: 33-(0)-1-45 24 82 00
Fax: 33-(0)-1-45 24 85 00
Web page:

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Steven Radelet & Jeffrey Sachs, 1998. "The Onset of the East Asian Financial Crisis," NBER Working Papers 6680, National Bureau of Economic Research, Inc.
  2. Frederic S. Mishkin, 1996. "Understanding Financial Crises: A Developing Country Perspective," NBER Working Papers 5600, National Bureau of Economic Research, Inc.
  3. Helmut Reisen, 1998. "Sustainable and Excessive Current Account Deficits," Empirica, Springer, vol. 25(2), pages 111-131, January.
  4. Jeffrey Sachs & Aaron Tornell & Andres Velasco, 1996. "Financial Crises in Emerging Markets: The Lessons from 1995," Harvard Institute of Economic Research Working Papers 1759, Harvard - Institute of Economic Research.
  5. Flood, Robert P. & Garber, Peter M., 1984. "Collapsing exchange-rate regimes : Some linear examples," Journal of International Economics, Elsevier, vol. 17(1-2), pages 1-13, August.
  6. Eduardo Borensztein & Jose De Gregorio & Jong-Wha Lee, 1995. "How Does Foreign Direct Investment Affect Economic Growth?," NBER Working Papers 5057, National Bureau of Economic Research, Inc.
  7. Jeffrey A. Frankel & Andrew K. Rose, 1996. "Currency Crashes in Emerging Markets: Empirical Indicators," NBER Working Papers 5437, National Bureau of Economic Research, Inc.
  8. Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.).
  9. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
  10. Calvo, Guillermo A. & Mendoza, Enrique G., 1996. "Mexico's balance-of-payments crisis: a chronicle of a death foretold," Journal of International Economics, Elsevier, vol. 41(3-4), pages 235-264, November.
  11. Reinhart, Carmen & Khan, Mohsin, 1995. "Macroeconomic Management in APEC Economies: The Response to Capital Inflows," MPRA Paper 8148, University Library of Munich, Germany.
  12. J. J. Polak, 1957. "Monetary Analysis of Income Formation and Payments Problems," IMF Staff Papers, Palgrave Macmillan, vol. 6(1), pages 1-50, November.
  13. Maurice Obstfeld, 1994. "The Logic of Currency Crises," NBER Working Papers 4640, National Bureau of Economic Research, Inc.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:oec:devaaa:136-en. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.