Asia’s ‘Victorian’ Financial Crisis

Summary Like the European economic crises of the nineteenth and early twentieth centuries, the crisis in East Asia is essentially an overproduction crisis. As in other such episodes, the East Asian case was characterised by large current account deficits prior to the crisis. Capital flows were channelled into investment projects, yet the region’s underdeveloped banking systems served to exacerbate liquidity fluctuations rather than limit them. IMF resources and demand management are essential for crisis management. In the long run, currency blocks may produce more stable currency arrangements.