What is Currency Crisis

A currency crisis is a situation in which there is serious doubt as to whether a country's central bank has enough foreign exchange reserves to maintain the country's fixed exchange rate.

A currency crisis, or balance-of-payments crisis, occurs when a country with a fixed exchange rate is force to either devalue or float its exchange rate because of massive capital outflows, and is often caused by speculative attacks. The fixed exchange rate is supported by international foreign reserves, and collapses when the pressure on the currency cannot be eliminated by central bank intervention, i.e., the central bank buying domestic currency.

There is no widely accepted definition of a currency crisis, which is normally considered as part of a financial crisis.

There is no widely accepted definition of a currency crisis, which is normally considered as part of a financial crisis. Kaminsky et al. (1998) AU77: The in-text citation "Kaminsky et al. (1998)" is not in the reference list. Please correct the citation, add the reference to the list, or delete the citation. , for instance, define currency crises as when a weighted average of monthly percentage depreciations in the exchange rate and monthly percentage declines in exchange reserves exceeds its mean by more than three standard deviations. Frankel and Rose (1996) AU78: The in-text citation "Frankel and Rose (1996)" is not in the reference list. Please correct the citation, add the reference to the list, or delete the citation. define a currency crisis as a nominal depreciation of a currency of at least 25% but it is also defined at least 10% increase in the rate of depreciation. In general, a currency crisis can be defined as a situation when the participants in an exchange market come to recognize that a pegged exchange rate is about to fail, causing speculation against the peg that hastens the failure and forces a devaluation or appreciation.