The 1994 crisis that followed Mexico’s peso devaluation and spread through emerging markets was the Tequila Crisis.
Mexico had maintained the peso within a controlled exchange-rate band, but political instability, falling foreign reserves, and large short-term dollar-linked debts increased pressure on the currency. On December 20, 1994, the government widened the band and then allowed the peso to float. The currency rapidly lost value, damaging confidence in Mexican financial markets.
The crisis also affected other emerging economies through investor contagion. The United States organized a rescue package involving loan guarantees and international support, helping Mexico meet its obligations and stabilize markets. The episode is also called the Mexican Peso Crisis or the December Mistake.
It is commonly confused with the Latin American debt crisis of the 1980s, which had different causes and occurred earlier. The Tequila Crisis became an important example of how short-term capital flows and exchange-rate policy can transmit financial stress across borders.