Which 1994 Mexican financial crisis began after the peso’s December devaluation?

The 1994 Mexican financial crisis that began after the peso’s December devaluation was the Mexican peso crisis.

Mexico devalued the peso in December 1994 after pressure on its exchange-rate system became unsustainable. The decision triggered a rapid loss of confidence, capital flight, and sharp declines in Mexican financial assets. The event is also widely known as the Tequila Crisis, but “Mexican peso crisis” is the standard direct answer to this question.

Mexico had financed a substantial current-account deficit with short-term capital, much of it represented by dollar-linked tesobonos. When investors doubted the government’s ability to maintain the exchange rate, those obligations became especially difficult to manage. The crisis spread to other emerging markets through investor reassessment, an effect sometimes called the Tequila Effect.

The United States and other countries assembled a large rescue package in 1995. Mexico later recovered, but the episode became a major example of how exchange-rate policy, foreign-currency exposure, and sudden capital outflows can interact.