What impact does exchange rate crisis have on other sectors of an economy?
I have an Economics exam tomorrow. I have to write the answer point wise. If someone can explain the answer for me in a simple language I'll be really thankful
- OiyLv 52 months ago
The best example of an exchange rate crisis in the textbook is called Tom-Yum-Kung crisis in 1995 in Asia. A fixed exchange rate that has stabilized the economy for decades has become a nightmare. It has caused the foreign reserves to dwindle. The imports have collapsed. Many companies collapse. So it has to apply for the IMF loans at a last resort. The loans come with tough conditions. It has forced to let the exchange rate go freely. Most of the companies with foreign loans collapse. Then come the bank-runs. The IMF has forced to sell the assets of the collapsed companies and the banks only to foreigners under 30% of market value to induce the hard currencies. That will take 10 years to recover.