Currency Crises and Collapses

Ilan Goldfajn,

Ilan Goldfajn Director - Western Hemisphere Department - International Monetary Fund

Rodrigo O. Valdes, and

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Rodrigo O. Valdes Massachusetts Institute of Technology

Rudiger Dornbusch

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Rudiger Dornbusch

Discussants: Michael Bruno and

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Michael Bruno

Sebastian Edwards

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Sebastian Edwards

THE COLLAPSE of the Mexican peso in late 1994 remains a topic of controversy. To some observers it appeared that the bungling of a new administration had brought about a disaster where there was no problem and every reason to expect stability and prosperity. In fact, some even argue that the damage could be undone by raising the peso to its initial level. The notion that the devaluation was a blunder or worse was shared by the Wall Street Journal’s editorial board, some members of the U.S. Congress, and other advocates of hard money, including exposed investors. In the Financial Times Jude Wanniski referred to “currency devaluationists,” and “currency debauchery” at the hands of Lawrence Summers and Stanley Fischer.