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Which country caused the financial crisis in 1990?
The main reason is a principle in international finance theory, 'impossible trinity', which means that a country must give up one of the three goals (Manetary independence, Full financial integration and Stability of currency) due to factors of economic power. One. These three goals cannot be achieved at the same time. Developed countries generally give up interest rate stability to obtain Manetary independence and full financial integration. Developing countries generally choose to maintain exchange rate stability (stability of currency) and full financial integration, which leads to financial policy (Manetary indenpendence) reduced role
Before discussing this issue, it is necessary to distinguish between two main methods of fixing exchange rates. Taking the US dollar as an example, one is called 'currency board'-that is, the central bank is committed to issue A unit of the national currency must be guaranteed before there is a US dollar in foreign exchange reserves deposited with the central bank. The other is called 'dollarization' - using the US dollar as the country's official currency. Compared with the currency board system, dollarization cannot be attacked, but the country must give up the right to issue currency. Although currency still has the ability to issue currency, it can be attacked (in the case of international balance of payments imbalance, or there is UIP, CIP arbitrage Opportunity)
The Asian financial crisis is caused by the balance of payments imbalance (BOP Disequilibrium). The Latin American financial crisis is international parity disequilibrium. Some literature on the Russian financial crisis believes that it is caused by political factors.
Take Brazil as an example. In order to maintain economic development in 1994, the Brazilian government adopted a fixed exchange rate system. This method has maintained the stability of Real (Brazilian currency) at a certain level. However, it also brings two problems: 1. Brazilian currency. Real was considered to be overvalued and at risk of depreciation in 1999, which resulted in a current account deficit (capital outflow) in the balance of international payments. 2. Under Brazil’s fixed exchange rate, it was impossible to adjust the national exchange rate in line with inflation ( The relative inflation rate, at the same time, the U.S. currency was about 2). This caused investors to withdraw capital and choose investments in countries with higher return rates.
In January 1999, the Brazilian government hoped to reduce capital by raising interest rates. Leave. But under this fixed exchange rate, the means of financial policy have lost their effect - UIP/CIP risk-free arbitrage opportunities have caused interest rates to be unable to control capital outflows, (such as the impossible trinity mentioned earlier, in order to stabilize the exchange rate and achieve international capital market integration. market, then it will lose the role of financial macro-control of the economy)
After the Brazilian crisis, it provided a lot of meaningful research. At present, it seems that if China opens its exchange rate too quickly, similar problems will arise. Another The Brazilian Crisis Observation is a phenomenon of overshooting.
(I don’t know how to translate some of the words used above for fear of causing ambiguity, so I use the original words, please forgive me)
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