The concept of currency crisis has narrow sense and broad sense. Narrow currency crisis corresponds to a specific exchange rate system (usually a fixed exchange rate system), which means that countries with a fixed exchange rate system adjust their exchange rate system and implement a floating exchange rate system under very passive circumstances (such as the deterioration of economic fundamentals or strong speculative attacks), and the exchange rate determined by the market is much higher than the original deliberately maintained level (that is, the official exchange rate). The impact of such exchange rate changes is unbearable. Currency crisis in a broad sense generally refers to the phenomenon that exchange rate changes are beyond a country's tolerance.
[Edit this paragraph] The main reasons for the currency crisis
In the era of globalization, the economies of various countries are more and more closely linked with the international economy, and the exchange rate is the "link" of this link. Therefore, under the condition of economic openness, how to choose the appropriate exchange rate system and implement the corresponding economic policies has become an important issue that policy makers must consider.
With the development of market economy and the acceleration of globalization, the stagnation of economic growth is no longer the main reason for the currency crisis. A large number of studies by economists show that overvaluation of exchange rate, huge current account deficit, decline in exports and slowdown in economic activities are all harbingers of currency crisis. As far as practical operation is concerned, the currency crisis is usually caused by the bursting of the bubble economy, the increase of bad debts of banks, the serious imbalance of international payments, excessive foreign debts, financial crisis, political turmoil, distrust of the government and other factors.
(A) improper exchange rate policy
Many economists generally believe that the fixed exchange rate system is not feasible under the condition of large-scale and rapid flow of international capital. Nominally, the fixed exchange rate system can reduce the uncertainty of exchange rate fluctuations, but since the 1990s, currency crises have frequently occurred in countries with fixed exchange rates. For this reason, in recent years, more and more countries have abandoned the fixed exchange rate system, such as Brazil, Colombia, South Korea, Russia, Thailand and Turkey. However, due to the outbreak of the financial crisis, most of these countries were forced to abandon their fixed exchange rates. The adjustment of exchange rate is often accompanied by the loss of self-confidence, the deterioration of financial system, the slowdown of economic growth and political turmoil. Some countries, such as Poland, Israel, Chile and Singapore, have successfully transitioned from a fixed exchange rate system to a floating exchange rate system.
(B) insufficient foreign exchange reserves
Research shows that the ideal foreign exchange reserves maintained by developing countries are "enough to pay for three months' imports". Due to improper exchange rate policy, locking in a major currency for a long time will lead to overvaluation of the local currency and reduce its competitiveness. On the eve of the currency crisis, the current account surplus often continues to decrease, and even a huge deficit appears. When foreign investors realize that the investing country is "insolvent" (foreign exchange reserves are insufficient to repay the foreign debts owed), the liquidation crisis will follow. Induced by many other unstable factors, it is easy to trigger withdrawal behavior, which in turn leads to currency crisis. The currency crisis in Latin America and other places is mainly due to the reduction of foreign exchange reserves caused by the current account deficit and the inability to repay foreign debts. For example, the ratio of Argentine public debt to GDP was 54% at the end of 200 1 and increased to 123% by the end of 2002 due to the devaluation of Abbiso. In 2003, the principal and interest of Argentina's debt to be repaid was $29,665,438 +0.4 billion, which was equivalent to 2.9 times of the foreign exchange reserves held by the central bank.
(c) The banking system is weak.
In most emerging market countries, including eastern European countries, a reliable precursor of the currency crisis is the banking crisis, and the weakness of the banking industry either leads to or aggravates the currency crisis. In many developing countries, bank income is excessively concentrated on debt income, but it lacks the ability to predict risks. Banks with insufficient capital and lax supervision borrow loans from abroad and then lend them to domestic problematic projects. Due to currency mismatch (banks often borrow in US dollars and lend in local currency) and maturity mismatch (banks usually borrow short-term funds and lend in construction projects that last for several years), the accumulated bad debts are increasing. For example, in the five years before the East Asian financial crisis broke out-10, the annual growth rate of credit markets in Malaysia, Indonesia, the Philippines and Thailand was between 20% and 30%, far exceeding the growth rate of industry and commerce and the growth of savings, thus forcing many banks to borrow money from abroad. The resulting economic bubble is getting bigger and bigger, and the banking system is becoming more and more fragile.
(d) Financial markets are opening up too quickly.
Many research data show that the rapid opening of financial markets in some emerging market countries, such as Latin America, East Asia and Eastern Europe, especially the premature abolition of capital controls, is the main reason for the currency crisis. The opening of financial market will lead to a large-scale inflow of capital, which will lead to the appreciation of the real exchange rate under the fixed exchange rate system and easily distort the domestic economy; However, when the international or domestic economy is in trouble, it will cause large-scale capital flight in a short period of time, leading to a sharp depreciation of the currency, which will inevitably lead 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 good balance of payments. However, in order to join the OECD, the Czech Republic has accelerated the pace of capital account opening. 1995 10 The new Foreign Exchange Law, which came into effect in June, stipulated full convertibility under the current account and partial convertibility under the capital account, and accepted the obligations of Article 8 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 flowed out at the end of 1997, which eventually detonated the monetary and financial crisis. According to statistics, three-fifths of countries that hastily opened their financial markets without adequate preparation have experienced financial crises, and Mexico and Thailand are classic examples.
The foreign debt burden is heavy.
The currency crises in Thailand, Argentina and Russia are closely related to the huge scale and unreasonable structure of foreign debts owed. For example, from 199 1- 1997, Russia * * absorbed US$ 23.75 billion in foreign investment, but only one of the total foreign investment was directly invested. About 30%, short-term capital investment accounts for about 70%. Because the construction and development of Russian financial market has always been centered on the bond market, and the main body of the bond market is the short-term national debt with a maturity of less than 1 year (80% is 3-4 months) issued by the Ministry of Finance after 1993, the short-term and highly open nature of this investment makes the stability of Russian bond market weak and often becomes the source of market turmoil. During the 1997 and 10 crises, foreign capital has mastered 60%-70% of stock market transactions and 30%-40% of national debt transactions. 1998 After mid-July, the Russian Ministry of Finance finally issued the "8. 17 Joint Statement", announcing "1trading and repayment of national debt due before the end of 999". The actual collapse of the bond market immediately set off a selling frenzy in the stock market, and the funds evacuated from the bond market and the stock market flocked to the foreign exchange market, which led to a serious imbalance between foreign exchange supply and demand and directly triggered the ruble crisis.
(6) The fiscal deficit is serious.
Countries with currency crises have fiscal deficits to some extent. The bigger the deficit, the greater the possibility of a currency crisis. The financial crisis directly led to the collapse of the bond market, which in turn triggered a currency crisis.
(7) government trust crisis
The trust of the people and investors in the government is the premise of financial stability, and winning the support of the people and investors is the basis for the government to effectively prevent and deal with the financial crisis. The Mexican peso crisis is largely due to its political fragility. 1994 the assassination of the presidential candidate and the turmoil in Chiapas have plunged Mexico's social economy into chaos. After the new government took office, it hesitated on economic policy, which made foreign investors think that Mexico might not take government expenditure and balance of payments seriously, leading to the financial crisis. An important reason for aggravating the financial crisis in Southeast Asian countries is political corruption. In the long run, "crony capitalism" breeds "internal transactions", which leads to a serious crisis of trust in the government by foreign investors and people. 1998 The main cause of the Russian financial crisis in May-June was also the domestic "crisis of confidence".
(8) Weak economic foundation
A strong manufacturing industry and a reasonable industrial structure are a solid foundation to prevent financial turmoil. The serious defect of industrial structure is one of the reasons for the economic crisis in many countries. For example, Argentina has always had serious structural problems. Although the neo-liberal reform was implemented in the 1990s, the adjustment of industrial structure was relatively backward. The export of agricultural and livestock products accounts for 60% of the total export, while the export of manufacturing industry only accounts 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 setbacks. For another example, on the eve of the Southeast Asian financial crisis, industries in Thailand, Indonesia and other countries stayed in labor-intensive processing and manufacturing for a long time. Under the competition of Chinese mainland and countries in transition in Eastern Europe, they gradually lost their original price advantage, and their exports continued to decline, and their foreign exchange earnings continued to decrease. The Russian crisis is also due to serious problems in the industrial structure. Economic recovery and export income are too dependent on oil production and export, international oil prices have fallen, foreign exchange income has decreased, and debt repayment ability has been greatly weakened.
(9) The transnational spread of the crisis
Due to the liberalization of trade, regional integration, especially the facilitation of cross-border capital flows, a country's currency fluctuations can easily cause financial market turmoil in neighboring countries, especially emerging markets. From Thailand to East Asia, from Russia to Eastern Europe, from Mexico to Brazil to Latin America, this "domino effect" has been repeatedly confirmed. Although crises usually occur only in one emerging market, frightened and irrational investors tend to 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 don't get there first, they will eventually hurt themselves, so it is a rational choice for investors to make a decision to sell; On the other hand, if investors lose money on a country's assets (such as Russian bonds), they will make up for the loss of the whole asset by selling similar assets in other emerging markets (such as Brazilian bonds). This is completely normal for a single investor. But on the whole, the withdrawal of many investors will lead to an irrational result, which will inevitably put the relevant countries in danger of financial crisis.
(x) Improper IMF policies.
The existence of the International Monetary Fund (IMF) led to or at least aggravated the financial crisis. From 1980s to 1990s, based on the "Washington Understanding" reached with the US Treasury, international financial institutions such as IMF imposed three policy suggestions on countries in crisis and waiting for rescue: fiscal austerity, privatization, free market and free trade. Joseph stiglitz, former chief economist of the World Bank and winner of the Nobel Prize in Economics, Jeffrey Sachs, a famous economist, founder of "shock therapy" and professor of Harvard University, etc. He lashed out at the "Washington Knowledge" of the International Monetary Fund, arguing that the IMF caused more problems than it solved, and forced the countries hit by the crisis to raise interest rates, thus deepening the recession and making the situation worse. This has led to economic collapse and social unrest in some countries. "Washington Knowledge" advocates a process of economic globalization in which "governments are overwhelmed by the decisions of multinational corporations and financial groups". The deeper criticism of the IMF involves that the IMF's rescue action will cause moral hazard, that is, rescuing countries in crisis will cause irrational behavior of investors and some countries, because they believe that they will always get international assistance when they are in trouble.
To sum up, international financial crises frequently occurred in the 1990s, ravaging Western Europe (1992- 1993), Mexico (1994- 1995) and East Asia (1997-65438+). Most countries hit by the crisis have almost gone the same way and finally tasted the same bitter fruit. This process can be summarized as follows: the fixed exchange rate rose rapidly, the currency was overvalued, the fiscal deficit continued to increase, the balance of payments continued to deteriorate, the currency depreciated, the financial crisis, the economic and social crisis fell in an all-round way, and it was forced to undergo shock adjustment, and finally it was a very painful and long recovery period.