The Thai baht’s devaluation triggered Thailand’s role in the 1997 Asian financial crisis.
On July 2, 1997, Thailand abandoned its fixed exchange-rate arrangement and allowed the baht to float. The currency then lost substantial value, exposing the weakness of heavily indebted businesses and financial institutions that had borrowed in foreign currencies.
The crisis spread through Southeast and East Asia. Indonesia, South Korea, Malaysia, and other economies experienced currency collapses, stock-market declines, bankruptcies, and recessions. International investors withdrew funds, while companies faced much larger domestic-currency debts after exchange rates moved against them.
The baht was not the only currency affected, but it was the crisis’s starting point. The International Monetary Fund organized assistance programs for several countries, including Thailand, Indonesia, and South Korea. The episode also encouraged many Asian governments to build larger foreign-exchange reserves and reconsider exchange-rate and banking policies.