The 1997 Asian Financial Crisis, explained: how a currency peg breaking in Thailand shook an entire region.

Originally reported as: “Currency turmoil spreads across Southeast Asia as Thailand abandons its dollar peg”

In July 1997, Thailand was forced to abandon its currency peg to the US dollar after speculative pressure drained its foreign currency reserves, sending the Thai baht sharply lower almost overnight. The crisis quickly spread to other economies across the region, including Indonesia, South Korea, Malaysia, and the Philippines, in what became known as financial contagion. The Philippine peso, which had traded at roughly 26 to the US dollar, weakened significantly within about a year, and the Bangko Sentral ng Pilipinas raised interest rates sharply to try to defend it. The International Monetary Fund stepped in with rescue packages worth tens of billions of dollars for the hardest-hit countries, tied to conditions on government spending and financial reform, and the episode remains one of the most important lessons in modern history about the risks of borrowing heavily in a foreign currency while pegging your own to it.