Chapter 8 Assignment: South-East Asian Currency Crisis

Currency Crisis Assignment
Name
Institution
Introduction
According to Burnside, Eichenbaum & Rebelo (2001), currency crisis is defined as a sudden devaluation of a currency that results in causing speculation based on the foreign exchange. There are a number of elements that can lead to crisis of currency which include, decisions on monetary policy or currency pegs; and can be resolved through implementation of floating exchange rates or better still avoiding monetary policies that is hell-bent at fighting the market rather than embracing it. Currency crisis has been experienced in various parts of the world, and one of those many parts of the world that has experienced the problem of currency crisis is Asia.
This paper examines currency crisis that occurred in the South-East Asia between 1997 and 1998.
1997-1998 South-East Asian Currency Crises
Asia is the most populated continents in the world, and comprising of more than 60% of the global population. By late 1997, the economic outlook for most of the South-East Asian countries had begun to experience currency instability. Between the years 1997 and 1998, the currency crisis that had begun in Thailand rapidlysweptacrossthe neighboring economies. It all begun as currency instability, which escalated to a full blown currency crisis. Following the crisis, Thai baht was unpegged by Bangkok central bank from the American dollar. Subsequently,the regulator’s swift move caused numerous currency devaluations within the country’s financial system. As a result, the first six months saw the a drastic percentage decline in the value of the Indonesian rupiah by about 80%. On the other hand, the Thai baht declined by over 50%, while the South Korean won for the first time in over two decades devalued by about50% percent. , The Malaysian ringgit wasn’t spared from these currency shocks. The ringgit declined by close to 45 percent. In a nutshell, the Asian economies that were significantly affected by the currency crisis saw a combined reduction of more than $100 billion for the entire period that the crisis lasted. The effect of the currency crisis wasenormous both in terms of its magnitude and scope. What had begun as Asian financial crisis spiraled out of control, becoming a global crisis. Large economies such as Russia and Brazil were not spared due to their close trading ties (Brown et al, 2000).
The Significance of the Asian Financial Crisis
The financial crisis that was experienced in Asia during this period is quite multifaceted. Despite the fact the currency crisis was described as the financial crisis or economic crisis. The crisis that was witnessed during the period between 1997 and 1998 may as well be seen as a crisis of governance at all major political levels; national, regional and global...