A currency crisis (also known as a financial crisis) occurs when the value of a currency changes quickly, undermining its ability to serve as a medium of exchange or a store of value. A medium of exchange is an intermediary used in trade to avoid the inconveniences of a pure barter system. ... To act as a store of value, a commodity, a form of money or financial capital must be able to be reliably saved, stored, and retrieved - and be predictably useful when it is so retrieved. ...
References
Axel Dreher, Bernhard Herz and Volker Karb (2004), Is There a Causal Link between Currency and Debt Crises?, University of Bayreuth, Discussion Papers in Economics No. 03-04.
We define our currencycrisis measure as a simple binary variable indicator of crisis victims (1 if a country is a victim, 0 if it is not) determined from journalistic and academic histories of the various episodes.
In particular, it is systematically higher for crisis countries at all reasonable levels of statistical significance, i.e., countries that become "infected" by the crisis have closer trade linkages to the "first victim" than countries that escape the disease.
Moreover, If countries are more at risk to the spread of currencycrisis than is apparent by looking just at domestic economic factors, a lower threshold for international or regional assistance is also warranted in order to limit the spread of speculative attacks.
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