Some Clues from History

Abstract

This chapter reviews four prominent cases of currency crises in some detail to identify the types of political conditions that tend to be associated with currency crises. Specifically, in discussing the political economy of the British and French decisions to break the link to gold in the 1930s, the Turkish crisis over 2000–01, and the decay of the Argentine convertibility regime prior to 2002, I hope to shed some light on potential sources of political instability and on the channels through which an unfavorable political environment may induce heightened volatility in foreign exchange markets. This discussion is intended to prepare the ground for developing more formal hypotheses on the link between political factors and the outbreak of currency crises discussed in Chapter 3, before proceeding with more thorough statistical testing based on a large country panel.