Banking and Currency Crises and Systematic Risk: Lessons from Recent Events
Author(s)
Kaufman, George G.
Abstract
Many countries worldwide have experienced serious banking and/or currency (exchange rate or balance of payments) problems in recent years with high costs in terms of reduced income and increased unemployment to their own countries as well as others. A study by the International Monetary Fund (IMF) reported that more than 130 of the IMF’s 180-plus member countries had experienced serious banking problems between 1980 and 1995, and this was even before the recent banking crises in East Asia–Korea, Thailand, Malaysia, and Indonesia–as well as in Russia. This article examines these twin banking and currency crises to attempt to identify their causes, particularly any similarities and interconnections, and their implications both for the country in which they occur and for other countries through possible contagion. Lastly, the article evaluates the effectiveness of alternative public policy initiatives introduced to mitigate if not prevent these crises and their accompanying potentially severe damage to the economy.
