CURRENCY CRISIS

A 'currency crisis' occurs when the value of a currency changes quickly, undermining its ability to serve as a medium of exchange or a store of value. It is a type of financial crisis and is often associated with a real economic crisis. Currency crises can be especially destructive to small open economies or bigger, but not sufficiently stable ones. Governments often take on the role of fending off such attacks by satisfying the excessive demand for a given currency. Their resource are the country's own currency reserves or its foreign reserves, usually in Euro or Dollar.

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References

★ Axel Dreher, Bernhard Herz and Volker Karb (2004), Is There a Causal Link between Currency and Debt Crises?, University of Bayreuth, Discussion Papers in Economics No. 03-04.

See also

Examples of recessions attributed to financial crises:

★ Asian financial crisis

★ Argentine economic crisis