Research
BPEA | 1995 No. 2Currency Crises and Collapses
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.