Do you know why Financial Crises reoccur?
Currency crises and debt crises have plagued the Latin American countries since 1980s. In East Asian economies, it is primarily the debt crises in the 1990s that led to tapering of the gains that had been made over the years in trade and currency management through various modes that can be used for keeping a currency afloat. A currency can be pegged against the dollar, and a fixed exchange rate can be maintained. In other cases, it is possible to maintain a floating rate wherein people can trade in the currency through buy and sell transactions against standard international currencies like the Dollar, the Euro and the British Pound. Even in case of a fixed exchange rate, maintaining a one to one ratio of the currency against the Dollar was tried in Latin American countries but it is not possible to maintain a stable currency with such a peg as the country in question in that case needs to have foreign currency reserves that allow it to pay a Dollar against the domestic currency should an investor want to move it out of the country. In simpler terms, for every one unit of the domestic currency you could buy one US Dollar in case of a one to one peg of the two currencies.
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