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Asian financial crisis (1997)

The chain of currency collapses that began when Thailand floated the baht in July 1997, spreading through Southeast Asia and Korea and ending several dollar pegs.

Several economies had run dollar-linked rates while their banks and companies borrowed heavily in dollars and lent domestically. When growth slowed and reserves drained, the pegs broke one after another. The baht was floated on 2 July 1997 and fell by more than half against the dollar within months; the Indonesian rupiah fell far further.

The damage came less from the exchange rate itself than from the balance sheets behind it. Dollar debts doubled or tripled in local terms while revenues stayed local, which is the mechanism described under devaluation, and banking systems failed alongside the currencies.

The aftermath reshaped policy across the region: far larger fx-reserves, more flexible regimes, and in Malaysia's case a period of explicit capital-controls with the ringgit fixed to the dollar.

Example: a company with $100m of dollar debt earning local revenue at 25 per dollar owed 2.5bn locally. At 50 per dollar it owed 5bn, with no change in its business.

Related: currency-peg, devaluation, capital-controls, emerging-market-currency

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