1997 Asian Crisis Evoked as Azeris Cap Year of Devaluations

  • Asian crisis also preceded by China devaluation, Fed rate move
  • Kazakhstan, Argentina among countries that abandoned pegs

The pace at which central banks from Argentina to Azerbaijan surrendered their grip on exchange-rate policy this year is bringing back memories of the 1997 Asian currency crisis. 

At least four dollar pegs have been abandoned and half a dozen others weakened as developing nations scrambled to adjust to an era of lower commodity prices, slowing growth in China and higher U.S. interest rates. The devaluations gathered pace in the second half after policy makers in Beijing surprised the world by depreciating the yuan on Aug. 11, putting pressure on regional trade partners to follow suit.

A year that began with Vietnam depreciating the dong has culminated in Argentina and Azerbaijan’s decisions to give up control of the peso and manat, respectively, in quick succession in December, with the currencies plummeting about 30 percent on their free-float debut.

Policy makers found eroding export competitiveness and dwindling foreign-exchange reserves too high a price for maintaining fixed exchange rates. The number of pegs scrapped this year resembled 1997, according to Simon Quijano-Evans of Commerzbank AG.

The Nigerian naira is at risk of a devaluation in the short term, while longer term the dollar-pegged currencies of the Arabian Gulf may face pressure if oil prices remain depressed, according to Demetrios Efstathiou, head of strategy for central and eastern Europe, Middle East and Africa at ICBC Standard Bank Plc in London.

Similar Circumstances

“The longer countries hold on to the peg, the more they drain their foreign-exchange reserves,” said Quijano-Evans, the London-based emerging-market strategist at Commerzbank. “At some stage, the vulnerabilities to the system -- in this case, the full dependence on oil for budget and balance-of-payment revenues -- come to light.”

The monetary crisis in southeast Asia 18 years ago was triggered by similar circumstances, with China devaluing and the Federal Reserve starting a cycle of interest-rate tightening in 1994. The chain of events eventually touched off a round of competitive currency depreciations that were followed by bank and corporate failures and recessions across much of the region.

Here’s a sample list of stories from Bloomberg that covered the devaluations and free floats around the emerging world through 2015:

China-Led Emerging Market Turmoil Evokes Parallel With 1994 (1)

Argentine Peso Plunges 29% as Macri Fulfills Free-Float Promise

Azerbaijan’s Shift to Free Float Sends Manat to 20-Year Low (2)

Kazakhstan Tenge Slides 23% as Emerging-Market Rout Strains Pegs

China Lets Yuan Devalue as Slowing Growth Pressures Currency Peg

Egypt Devalues Pound Third Time in 2015 After Reserves Slide (3)

Sri Lanka Eases Grip on Rupee as Emerging Currencies Show Strain

Devaluation Fever Spreads to Pakistan as Rupee Hits 17-Month Low

Vietnam Devalues Dong for Third Time in 2015 on Yuan Fallout

South Sudan Devalues Currency by 84% as Dollar Peg Abandoned (2)

Before it's here, it's on the Bloomberg Terminal.