Thailand’s 1997 currency collapse helped ignite the Asian financial crisis and regional stock-market crashes.
Thailand had maintained the baht within a narrow exchange-rate arrangement while borrowing heavily in foreign currencies. Property prices and financial-sector lending expanded rapidly, creating vulnerabilities. Speculators eventually challenged the baht, and the country’s reserves were insufficient to defend the currency indefinitely.
Thailand allowed the baht to float on July 2, 1997. It then depreciated sharply, increasing the local-currency burden of foreign debts. Financial stress spread through banks, property companies, and corporations, while investors reassessed other Asian economies with similar weaknesses.
The crisis affected Indonesia, South Korea, Malaysia, and several other economies. The International Monetary Fund provided assistance to Thailand, Indonesia, and South Korea under programs requiring economic reforms. The episode showed how a currency crisis could transmit rapidly into equity markets and banking systems.