Economics of Foreign Exchange
Please choose one of the following options from 1-4 as an essay topic.
1. The task is to choose a specific financial crisis that had the currency regime at its centre and to explain how the crisis came about and how the exchange rate
regime played a role in the subsequent adjustment. You may choose from among a long list of historical examples (such as can be found in Appendix A4 of “This Time is
Different: Eight Centuries of Financial Folly” by Carmen M. Reinhart and Kenneth S. Rogoff, Princeton UP, 2009.) The following are some suggestions.
Relevant recent crises include:
The Iceland crisis of 2008
The Asian crisis of 1998 (in any one of the countries involved)
The UK’s ERM crisis of 1992
The Argentina crisis of 2001-2 (this could be compared to the current crisis happening right now)
The Nordic banking crisis of 1991-4
The Mexican debt crisis of 1994
The Latin American debt crisis of the early 1980s
The Russian debt crisis of 1998
2. One alternative available is to take a financial crisis where currency adjustment was not available such as in the recent Greek debt crisis (or Ireland, Spain,
Portugal) and discuss how the outcome might have changed (or been avoided) with an independent currency.
3. Another alternative is to investigate adjustment under a commodity standard (eg the gold standard) and how particular crisis events evolved in that context, and/or
led to regime change. Examples would be:
The UK’s break with gold in 1931
The breakdown of the “Latin monetary union” that ran from 1865 to 1927.
The breakdown of Bretton Woods and the floating of the dollar (the private gold market split off in 1968 and the dollar finally floated in 1973).
4. Yet another option is to look at a currency where the crisis is linked to hyperinflation (and currency collapse). The most extreme examples of this are:
The financial crisis of 2007-8 is not of great relevance to this course as it was not a crisis linked to currency structures and exchange rates did not play much part
in the adjustment, as the main currency blocks were all hit at the same time in similar ways. So do not use that crisis.