The 1994 Mexican financial crisis caused by the peso's devaluation was known as the Tequila crisis.
Mexico devalued the peso in December 1994 after pressure on its foreign-exchange reserves and an unsustainable exchange-rate policy. The country had accumulated substantial short-term dollar-linked obligations, including tesobonos, while political shocks and investor doubts encouraged capital flight.
The peso fell sharply, Mexican interest rates rose, and the crisis spread to other emerging markets. Investors feared that Mexico's difficulties signaled similar problems elsewhere, producing what became known as the “Tequila Effect.” Mexican banks and businesses faced severe financial pressure.
The United States, the International Monetary Fund, and other institutions assembled a rescue package worth tens of billions of dollars. Mexico's economy later recovered, but the episode demonstrated how quickly exchange-rate stress in one emerging market could affect global investors.