Lessons for the International Financial System
The currency turmoil in Asia—which now has extended to Russia as well—has been aggravated by a confidence crisis feeding on itself in a self-reinforcing and destructive way. Financial market “animal spirits” can be sensitive and fickle—which, I hasten to add, is not the same as saying that financial markets are irrational. And the nature of currency crises is such that they mutate over time, much like a virus. These factors make it extraordinarily difficult to predict crises. The initial triggers in a few countries like Thailand may have been reasonably visible, but the depth, timing, speed and spread of the events that followed were not foreseen.
Unable to display preview. Download preview PDF.