BPEA | 1995 No. 2

Currency Crises and Collapses

Ilan Goldfajn,
headshot of Ilan Goldfajn
Ilan Goldfajn Director - Western Hemisphere Department - International Monetary Fund
Rodrigo O. Valdes, and
Rodrigo O. Valdes Massachusetts Institute of Technology
Rudiger Dornbusch

1995, No. 2

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.