Asian Financial Crisis


DEFINITION of 'Asian Financial Crisis'

Also called the "Asian Contagion", this was a series of currency devaluations and other events that spread through many Asian markets beginning in the summer of 1997. The currency markets first failed in Thailand as the result of the government's decision to no longer peg the local currency to the U.S. dollar. Currency declines spread rapidly throughout South Asia, in turn causing stock market declines, reduced import revenues and even government upheaval.

The Asian Financial Crisis was stemmed somewhat by financial intervention from the International Monetary Fund and the World Bank. However, market declines were also felt in the United States, Europe and Russia as the Asian economies slumped.

BREAKING DOWN 'Asian Financial Crisis'

As a result of the crisis, many nations adopted protectionist measures to ensure the stability of their own currency. Often this led to heavy buying of U.S. Treasuries, which are used as a global investment by most of the world's sovereignties.

The Asian crisis led to some needed financial and government reforms in countries like Thailand, South Korea, Japan and Indonesia. It also serves as a valuable case study for economists who try to understand the interwoven markets of today, especially as it relates to currency trading and national accounts management.

  1. Contagion

    The spread of market changes or disturbances from one region ...
  2. Stock Market Crash

    A rapid and often unanticipated drop in stock prices.
  3. International Monetary Fund - IMF

    An international organization created for the purpose of standardizing ...
  4. Exchange Rate

    The price of a nation’s currency in terms of another currency. ...
  5. Foreign Currency Effects

    The gain or loss on foreign investments due to changes in the ...
  6. Country Risk

    A collection of risks associated with investing in a foreign ...
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