Which 1994 crisis saw Mexico devalue the peso and triggered heavy selling in emerging markets?

The 1994 crisis in which Mexico devalued the peso was the Mexican peso crisis.

Mexico had maintained a managed exchange-rate system in which the peso was allowed to move within a band against the U.S. dollar. During 1994, political violence, large current-account deficits, and concerns about Mexico’s dollar-linked short-term debt increased pressure on the currency.

In December 1994, the government widened the exchange-rate band and then allowed the peso to float. The currency lost a large share of its value, and investors rapidly withdrew money from Mexican assets. The shock spread to other emerging markets, producing what became known as the Tequila Effect.

The United States organized a support package involving loans and guarantees, while the International Monetary Fund also provided assistance. The crisis is distinct from the 1997 Asian financial crisis, which began with Thailand’s currency problems and spread across East and Southeast Asia.