Political Economy of Currency Crises and Devaluation

Abstract

The effect of political transitions on market expectations of a currency’s value offers analysts a clear example of how domestic politics can impact international relations. Changes in government can lead to currency volatility that can spread to other countries not involved in the original crisis. This could necessitate exchange rate intervention and possibly a currency realignment, which would be negotiated among the finance ministers of the various Member States while currency market transactions in their respective countries are suspended. While currency crises may be domestic in origin, they can have ramifications for international politics as well.