Hello Christopher, your discussion on capital flow and currency crisis is magnificent. Your discussion reveals that you are well aware of the effects of the currency crisis and capital flow in deep destabilization in markets. By highlighting the several reasons the financial crisis took place in Asia and comparing the currency exchange rates greatly enhances your discussion on capital flow and financial crisis.
The Asian contagion was deeply rooted in several threads of monetary, financial, and industrial phenomena. Generally, the export-led growth economic strategy that the Asian countries had adopted led to the crisis. This form of strategy included close government cooperation with manufacturers of export products. The strategy also facilitated a currency peg to the United States dollar for a favorable exchange to the exporters.
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The Asian contagion began in Thailand in 1997 and quickly spread to other countries, including Indonesia, South Korea, Malaysia, and the Philippines. The contagion started as a currency crisis when Thailand unpegged their currency from the United States dollar, setting currency devolutions series and massive capital flights. In six months, the value of the Thai baht was down by 50 percent (Rönkkö, 2020). The Asian contagion became a global crisis because of its scope and magnitude and spread to Brazilian and Russian economies.
A more significant financial crisis followed the collapse of the Thai baht during the Asian contagion, and the countries affected are still struggling to recover to date. The Asian systems' weaknesses to develop an outstanding risk management scheme that would guarantee them against failure significantly contributed to the contagion. Indeed, when one economy collapses, other neighboring economies are also affected because of actual shock.
Reference
Rönkkö, N. P. (2020). Estimating the Impact of a Monetary Shock on Small Open Economy-Thailand During the Asian Crisis 1997. https://helda.helsinki.fi/handle/10138/317571
