Why do currency crises become internationalized?

Question

Quizplus · Accepted Answer

When a currency crisis occurs in one country, international investors often become more risk-averse and seek to withdraw their investments from countries that have similar economic characteristics or vulnerabilities. This can lead to a contagion effect, where one crisis spreads to other countries, causing a more widespread internationalization of the crisis. The World Bank may provide loans to help alleviate the effects of the crisis, but this does not necessarily cause the crisis to become internationalized. The fact that many countries use the same currencies may also contribute to the spread of the crisis, but this is a secondary factor. Domestic investors may withdraw their funds in response to a crisis, but this does not necessarily lead to internationalization.

Why Do Currency Crises Become Internationalized