Currency Crisis

Definition

A currency crisis occurs when a nation's currency experiences a sharp, sudden devaluation, often triggered by speculative attacks, capital flight, or loss of investor confidence. Central banks may attempt to defend the currency by raising interest rates or spending foreign reserves, but these measures can deplete reserves and worsen economic conditions. Currency crises frequently lead to inflation, recession, and social unrest. They can spread contagiously to neighboring economies through trade and financial linkages. Historical examples include the 1997 Asian financial crisis, the Argentine peso collapse of 2001, and the Turkish lira crisis of 2018.