[Edit this paragraph] Definition of currency crisis

The concept of currency crisis can be divided into narrow sense and broad sense. A currency crisis in a narrow sense corresponds to a specific exchange rate system (usually a fixed exchange rate system). The meaning is that a country that implements a fixed exchange rate system is in a very passive situation (such as when economic fundamentals deteriorate, or when it encounters In the case of strong speculative attacks), the country's exchange rate system is adjusted and a floating exchange rate system is implemented. The exchange rate level determined by the market is much higher than the original deliberately maintained level (i.e., the official exchange rate). This exchange rate change The impact is difficult to control and intolerable. This phenomenon is a currency crisis. A broad currency crisis generally refers to the phenomenon that the exchange rate changes beyond the range that a country can bear.

[Edit this paragraph] The main cause of the currency crisis

In the era of globalization, the national economy and the international economy are increasingly closely linked, and the exchange rate is the key to this link. Therefore, how to choose an appropriate exchange rate system and implement matching economic policies has become an important issue that policymakers must consider under the conditions of economic openness.

With the development of market economy and acceleration of globalization, stagnation of economic growth is no longer the main cause of currency crises. A large number of studies by economists have shown that overvalued exchange rates, huge current account deficits, declining exports and slowing economic activities are all precursors to a currency crisis. In terms of actual operation, currency crises are usually caused by the bursting of the bubble economy, an increase in bank bad debts, a serious imbalance in the balance of payments, excessive foreign debt, fiscal crises, political turmoil, and distrust of the government.

(1) Improper exchange rate policy

Many economists generally agree with the conclusion that a fixed exchange rate system is not feasible under the conditions of large-scale and rapid international capital flows. A fixed exchange rate system can nominally reduce the uncertainty of exchange rate fluctuations, but since the 1990s, currency crises have often occurred in countries that implement fixed exchange rates. For this reason, in recent years, more and more countries have abandoned the fixed exchange rate systems they once implemented, such as Brazil, Colombia, South Korea, Russia, Thailand and Turkey. However, most of these countries were forced to abandon fixed exchange rates due to the outbreak of the financial crisis. Exchange rate adjustments are often accompanied by a loss of self-confidence, deterioration of the financial system, slowdown in economic growth, and political instability. There are also some countries that have successfully transitioned from a fixed exchange rate system to a floating exchange rate system, such as Poland, Israel, Chile and Singapore.

(2) Insufficient foreign exchange reserves

Research shows that the ideal amount of foreign exchange reserves maintained by developing countries is "enough to cover three months of imports." Due to improper exchange rate policies, locking in a major currency for a long time will lead to overvaluation of the local currency and reduced competitiveness. On the eve of a currency crisis, the current account surplus often continues to decrease, or even a huge deficit occurs. When foreign investors realize that the investing country is "insolvent" (foreign exchange reserves are insufficient to repay the foreign debt it owes), a liquidation crisis will ensue. Induced by many other unstable factors, it is easy to trigger divestment behavior, leading to a currency crisis. Currency crises in Latin America and other places are mainly caused by current account deficits that reduce foreign exchange reserves and the inability to repay external debts. For example, Argentina's total public debt accounted for 54% of GDP at the end of 2001. Affected by the devaluation of Abso, it had risen to 123% at the end of 2002. In 2003, Argentina needed to repay debt principal and interest of US$29.614 billion, equivalent to 2.9 times the foreign exchange reserves held by the central bank.

(3) Fragility of the banking system

In most emerging market countries, including Eastern European countries, a reliable precursor to currency crises is banking crises, which are either caused or exacerbated by weaknesses in the banking industry. Currency crisis occurs. In many developing countries, bank income is too concentrated in debt returns but lacks the ability to predict risks. Banks that are undercapitalized and not subject to strict supervision borrow heavily from abroad and then lend to problematic domestic projects. Due to the mismatch in currencies (banks often borrow in U.S. dollars and lend out in local currency) and terms, (Banks usually borrow short-term funds and lend for construction projects that last several years.) As a result, bad and bad debts have accumulated. For example, 5 to 10 years before the outbreak of the East Asian financial crisis, the annual growth rate of the credit markets in Malaysia, Indonesia, the Philippines, and Thailand was between 20% and 30%, far exceeding the growth rate of industry and commerce, and also exceeding the growth of savings. , thus forcing many banks to borrow abroad. The resulting economic bubble is getting bigger and bigger, and the banking system is becoming more fragile.

(4) The financial market is opened too quickly

Many research materials show that some emerging market countries such as Latin America, East Asia, and Eastern Europe opened their financial markets too quickly, especially the premature lifting of restrictions on capital. control is the main reason for the currency crisis. The opening of financial markets will trigger large-scale capital inflows, leading to an appreciation of the real exchange rate under a fixed exchange rate system, which can easily distort the domestic economy; when there are disturbances in the international or domestic economy, it will cause large-scale capital flight in the short term, leading to sharp currency fluctuations. devaluation, which inevitably leads to a currency crisis. Among countries with economies in transition, the Czech Republic is a relatively successful example.

At the end of 1992, the Czech economy showed signs of recovery, with stable prices, fiscal surplus, increased foreign direct investment, and a good balance of payments. However, in order to join the OECD, the Czech Republic has accelerated the pace of opening up capital projects. The new Foreign Exchange Law, which came into effect in October 1995, provides for full convertibility under the current account and partial convertibility under the capital account, accepting the Article 8 obligations of the International Monetary Fund. Due to the fragility of the banking system and the lack of effective supervision, a large number of short-term foreign capital outflows occurred at the end of 1997, eventually triggering a currency and financial crisis. According to statistics, financial crises have occurred in three-fifths of the countries that rushed to open their financial markets before being fully prepared. Mexico and Thailand are classic examples.

(5) Heavy foreign debt burden

The currency crises in Thailand, Argentina and Russia are closely related to the huge scale and unreasonable structure of the foreign debt they owe. For example, Russia attracted a total of US$23.75 billion in foreign investment from 1991 to 1997, but of the total foreign investment, only direct investment. Accounting for about 30%, short-term capital investment is about 70%. Since the construction and development of the Russian financial market has always been centered on the bond market, the main body of the bond market has been short-term treasury bonds with a maturity of less than 1 year issued by the Ministry of Finance since 1993 (80% are 3 months to 4 months ), the short-term nature of this investment and its high degree of openness to the outside world make the stability of the Russian bond market weak, and thus often become the source of market turbulence. In October 1997, when the crisis broke out, foreign capital already controlled 60% to 70% of stock market transactions and 30% to 40% of treasury bond transactions. After mid-July 1998, the Russian Ministry of Finance finally issued the "August 17 Joint Statement", announcing that it would "stop the trading and repayment of government bonds maturing before the end of 1999." The actual collapse of the bond market immediately set off a selling frenzy in the stock market. , funds withdrawn from the stock market rushed into the foreign exchange market, causing a serious imbalance in the supply and demand relationship of foreign exchange, directly triggering the ruble crisis.

(6) Serious fiscal deficit

In countries experiencing currency crises, there are more or less fiscal deficit problems. The larger the deficit, the less likely a currency crisis will occur. The bigger. The fiscal crisis directly triggers the collapse of the bond market, which in turn leads to the currency crisis.

(7) Government Trust Crisis

The trust of the public and investors in the government is a prerequisite for financial stability. At the same time, winning the support of the public and investors is an important step for the government to effectively prevent and respond to financial crises. The basis of the crisis. The Mexican peso crisis is largely due to its political fragility. The assassination of the presidential candidate in 1994 and the unrest in Chiapas put Mexico's social economy in turmoil. The hesitation of the new government on economic policies after taking office made foreign investors believe that Mexico might not take its government spending and balance of payments issues seriously. Such a crisis of trust caused a financial crisis; an important reason for exacerbating the financial crisis in Southeast Asian countries is Political corruption and "crony capitalism" continue to breed "insider transactions" and, if things go on like this, lead to a serious crisis of trust in the government by foreign investors and the public; the main cause of the Russian financial crisis from May to June 1998 was also the domestic "crisis of trust" ".

(8) Weak economic foundation

A strong manufacturing industry and a reasonable industrial structure are the solid foundation for preventing financial turbulence. Serious flaws in the industrial structure are one of the causes of economic crises in many countries. For example, Argentina has always had serious structural problems. Although neoliberal reforms were implemented in the 1990s, industrial structure adjustment lagged behind. Exports of agricultural and animal husbandry products accounted for 60% of total exports, while manufacturing exports only accounted for about 10%. After the price of primary products in the international market fell and some countries increased barriers to Argentine agricultural products, Argentina lost its competitive advantage and its exports suffered a setback. For another example, on the eve of the Southeast Asian financial crisis, the industries of Thailand, Indonesia and other countries have been stuck in labor-intensive processing and manufacturing for a long time. Under the competition from mainland China and Eastern European transition countries, they have gradually lost their original price advantages, exports have continued to decline, and foreign exchange earnings have continued to decline. reduce. The Russian crisis is also due to serious problems in the industrial structure. Economic recovery and export earnings are too dependent on oil production and export. International oil prices have fallen, foreign exchange income has decreased, and the ability to repay debt has been greatly weakened.

(9) Cross-border spread of crises

Due to trade liberalization, regional integration, and especially the facilitation of cross-border capital flows, currency turmoil in one country can easily trigger financial crises in neighboring countries. Markets are in turmoil, especially in emerging markets. Thailand to East Asia, Russia to Eastern Europe, Mexico and Brazil to Latin America, etc. have repeatedly confirmed this "domino effect". Although crises usually occur in just one emerging market, panicked and irrational investors often withdraw funds from all emerging markets. This is because: on the one hand, investors are worried that other investors will sell securities, and if they do not get there first, they will eventually be hurt. Therefore, it is a rational choice for investors to make the decision to sell; on the other hand, if investors have assets in a country ( If there is a shortfall in bonds (such as Russian bonds), they will make up for the entire asset loss by selling similar assets in other emerging markets (such as Brazilian bonds). This is completely normal for individual investors. However, on the whole, the withdrawal of funds by many investors will lead to an irrational result, which will inevitably put the relevant countries in danger of financial crisis.

(10) Improper IMF policies

The existence of the International Monetary Fund (IMF) caused or at least exacerbated the financial crisis. From the 1980s to the 1990s, the IMF and other international financial institutions, based on the "Washington Consciousness" reached with the U.S. Department of the Treasury, imposed "fiscal austerity, privatization, free markets, and liberalization" on countries suffering from crises and waiting for rescue. "Trade" three major policy recommendations. Joseph Stiglitz, the former chief economist of the World Bank and winner of the Nobel Prize in Economics, and Jeffrey Sachs, a famous economist, founder of "shock therapy" and professor of Harvard University, etc., fiercely criticized: The IMF's "Washington Consciousness" believes that the IMF is causing more problems than it solves, and that the organization has forced crisis-hit countries to raise interest rates, thereby deepening the recession and making the situation worse. This has led to economic collapse and social unrest in some countries. "Washington Consciousness" advocates an economic globalization process in which "national governments are overwhelmed by the decisions of multinational corporations and financial groups." A more profound criticism of the IMF involves the fact that the IMF's rescue operations will cause moral hazard, that is, the bailout of countries in crisis will cause investors and some countries to behave irrationally because they believe that they will always receive international bailout when they encounter trouble. .

To sum up, international financial crises occurred frequently in the 1990s, successively raging in Western Europe (1992-1993), Mexico (1994-1995), and East Asia (1997-1998). ), Russia (1998), Brazil (1999), Turkey (2001), Argentina (2001-2002) and other countries or regions. Most countries hit by the crisis have traveled almost the same path and ended up tasting the same bitter consequences.

This process can be summarized as: fixed exchange rate - rapid growth - currency overvaluation - increasing fiscal deficit, continued deterioration of international balance - currency depreciation, financial crisis, economic and social crisis - comprehensive recession - forced to make shock adjustments, and finally What followed was a very painful and long recovery period