Mexico’s currency crisis in 1994 triggered the emerging-market stock sell-off known as the Tequila Crisis.
Mexico devalued the peso in December 1994 after pressure on its foreign-exchange reserves became unsustainable. Investors reacted by withdrawing capital, and the shock spread through Latin American and other emerging markets. The episode is also called the Mexican peso crisis.
Mexico had financed substantial current-account deficits with foreign capital, much of it in short-term dollar-linked instruments known as tesobonos. When confidence weakened, the government faced a difficult combination of falling reserves, currency pressure, and debt repayment risk.
The United States arranged a large rescue package with support from the International Monetary Fund and other institutions. The crisis is not the same as the 1997 Asian financial crisis, although both demonstrated how quickly capital flows can transmit financial stress across borders. The nickname “Tequila Crisis” refers to the Mexican origin of the shock.