The 1994 financial crisis following Mexico’s peso devaluation was called the Tequila Crisis.
Mexico devalued the peso in December 1994 after pressure on its foreign-exchange reserves and difficulty maintaining the currency’s exchange-rate regime. Investors rapidly withdrew capital, causing the peso to lose much of its value and putting severe pressure on Mexican banks and companies with dollar-linked obligations.
The shock spread through emerging markets, especially in Latin America, as investors reassessed risk. The United States, the International Monetary Fund, and other institutions assembled a rescue package that helped Mexico meet its external obligations.
The crisis is also known as the Mexican peso crisis. “Tequila effect” describes its international contagion, not a separate market crash. The episode demonstrated how quickly capital flows and investor confidence could transmit financial stress across countries.