Mexican peso crisis (Tequila Crisis)
On December 20, 1994, the Mexican government devalued the peso by 15 percent, attempting a controlled adjustment after months of capital flight. Within two days, the peg failed entirely. The peso fell from 3.4 to the dollar in November to over 7 by March 1995, losing more than half its value. President Ernesto Zedillo had inherited a current-account deficit of nearly 7 percent of GDP, dollar-denominated short-term debt (tesobonos) the Treasury could not roll over, and reserves of roughly $6 billion against $30 billion in maturing obligations. The Clinton administration organized a $50 billion rescue package using the Treasury's Exchange Stabilization Fund — the first modern emerging-market bailout, and the template the IMF would use repeatedly through the rest of the decade.
The 'Tequila Crisis' got its name from the contagion that followed: capital flight from Mexico spilled across Latin America, hitting Argentina, Brazil, and Venezuela in early 1995. The Clinton rescue was organized over the head of Congress, which had rejected a smaller package weeks earlier. It became the political template for the IMF's role in the 1997 Asian crisis, the 1998 Russian crisis, and the 2001 Argentine crisis — and produced the political backlash that would shape EM financial nationalism for the next twenty years.
06 · Modern Fiat Failures
With gold constraints gone entirely, currency debasement became a recurring feature of emerging-market economics. Argentina replaced its currency five times between 1970 and 1992, each time lopping off zeros and re-starting. Brazil did similar serial redenominations. Yugoslavia, Zimbabwe, and the post-Soviet states produced spectacular hyperinflations. Meanwhile, major central banks learned to hide their monetary expansion in increasingly technical mechanisms — money-supply measures were redefined, reporting requirements were relaxed, and the Federal Reserve stopped publishing M3 entirely in 2006.
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