Direct Answer
A currency crisis occurs when a fixed or managed exchange-rate regime loses the confidence of foreign-exchange markets, forcing devaluation or abandonment of the peg as reserves are exhausted. The seven episodes here span the collapse of the Bretton Woods gold-dollar peg, European ERM crises, emerging-market currency collapses in Mexico, Asia, and Russia, and the sudden Swiss franc appreciation of 2015. Each examines currency mismatch, reserve adequacy, capital flight, and the interest-rate defense available to the authorities.
Currency Crises: Historical Case Studies
This hub explains how pegs, reserves, foreign-currency liabilities, and capital flows interact when confidence in a currency regime breaks. It is a mechanism-first collection: readers can move from broad explanation to specific historical episodes, compare events, and see where a superficially similar analogy breaks.
What to Watch Across These Events
Focus on currency mismatch, reserve adequacy, capital flight, interest-rate defense, devaluation, and external funding. A useful comparison asks what had to stay true before the event, who was forced to act when conditions changed, how losses moved across balance sheets, and which policy tool addressed liquidity, solvency, inflation, confidence, or market functioning.
A useful question for any episode: could the mechanism be identified from publicly available information before the event, and if so, what would an investor have had to believe and do differently? The case studies here are written to answer that question explicitly, separating what was visible from what only appeared obvious afterwards.
Case Studies in This Category
Each case study examines the episode as a chain: the vulnerability that accumulated beforehand, the catalyst that triggered the event, how losses and stress transmitted through the system, what policy response followed, and how recovery unfolded. Links below go to the full case study for each episode.
Compare the Mechanism, Not Just the Headline
Two events can share a category label and still require different investor conclusions. A banking event driven by uninsured-deposit flight differs from one dominated by loan losses. A currency crisis under a hard peg differs from a floating exchange-rate adjustment. An inflation episode created by a temporary supply shock differs from one in which expectations and policy credibility become unanchored. The case studies here are designed to surface those differences explicitly, so the comparison produces a better-calibrated understanding of risk rather than a simple analogy.
Comparison across events in this category is most useful when it asks: what structural condition had to be in place before the event could occur? Which of those conditions were measurable in advance? What was the policy constraint that shaped the response? And how long did recovery take, compared to the episode's depth?
Frequently Asked Questions
What is a currency crisis and how does it start?
A currency crisis occurs when a country's exchange-rate regime is under enough pressure that the authorities can no longer maintain it. Most crises begin with a fundamental misalignment: the currency is overvalued relative to its productive base, often because of persistent inflation or current-account deficits financed by foreign capital. Investors anticipate the eventual devaluation and move capital out, depleting foreign reserves. Once reserves approach a critical level, a speculative attack can become self-fulfilling: the belief that a devaluation is coming causes capital flight that makes devaluation inevitable.
Why is foreign-currency debt dangerous in a currency crisis?
When a country with a fixed or managed exchange rate borrows in foreign currency, a devaluation raises the local-currency value of that debt overnight. A company or government that borrowed 100 million dollars and held local-currency revenues now owes the equivalent of 130 or 150 million in local terms after a 30-50 percent devaluation. This balance-sheet effect can trigger insolvencies and banking crises simultaneously with the currency crisis, as was seen across East Asia in 1997-1998. The larger the foreign-currency debt stock relative to reserves or revenues, the more severe the balance-sheet damage when the peg breaks.
How did George Soros break the Bank of England on Black Wednesday?
Sterling joined the European Exchange Rate Mechanism in 1990 at a rate of 2.95 Deutsche marks, which required the Bank of England to maintain that rate within narrow bands by buying pounds when the rate approached the floor. By 1992, British interest rates and inflation were incompatible with German rates set for reunification needs, making the ERM commitment increasingly costly. Soros and other speculators sold sterling short in large size, correctly betting that the cost of defending the peg through interest-rate increases would be politically unsustainable. The Bank of England spent an estimated 3.3 billion pounds of reserves in a single day before suspending ERM membership on September 16, 1992.
What did the Asian financial crisis reveal about currency pegs and capital flows?
The Asian crisis of 1997-1998 revealed that maintaining a currency peg while allowing free capital flows creates a dangerous combination. Several East Asian economies had pegged their currencies to the dollar, borrowed heavily in dollars to fund domestic investment, and accumulated large short-term external liabilities. When property and stock prices peaked and current accounts weakened, foreign investors began pulling capital. The peg defense required raising interest rates, which worsened domestic conditions. When reserves were exhausted and pegs broke, the simultaneous currency devaluation and interest-rate spike caused banking crises in countries including Thailand, Indonesia, and South Korea.