“An exchange rate crisis appears when a currency stops appreciating. Inflation accelerates, interest rates rise, economic activities stagnate and at some point the situation becomes unbearable,” said Jean-Paul Betbeze, Economic Manager of the French Credit Agricole bank. He added that investments dropped in countries which registered strong economic growth. “There are doubts regarding the health of these economies, and capital flow has returned to the euro and the dollar,” explained Betbeze.
Similar situations were registered in Mexico in 1994, in Russia in 1998, and in Argentina in 2001.
Olivier Blanchard, Chief Economist of the International Monetary Fund (IMF) recently expressed his concern in an article published in Le Monde about the risks of a foreign currency crisis breaking out in emerging countries. Most vulnerable are countries with foreign currency debts and wide current account deficits.
