Mexico’s 1994–1995 financial crisis after the peso was devalued was nicknamed the Tequila crisis. Mexico devalued the peso in December 1994 after pressure from falling reserves, political instability, and concerns about the country’s dollar-linked short-term debt.
The devaluation surprised investors and triggered a rapid loss of confidence. Capital flowed out of Mexico, the peso fell sharply, and many borrowers struggled to repay debts denominated in U.S. dollars. The crisis affected banks, businesses, employment, and household finances.
The United States and international institutions organized a rescue package worth tens of billions of dollars. The support helped Mexico meet its obligations and stabilize financial conditions, although the adjustment was economically painful.
The word “Tequila” is a nickname, not the formal name of Mexico’s currency or a description of the peso itself. The episode is also called the Mexican peso crisis. Its international spillovers made it an important example of how modern capital markets could transmit a local currency crisis abroad.