Which Mexican currency crisis caused a major emerging-market sell-off known as the Tequila Crisis?

The Mexican peso crisis caused the major emerging-market sell-off known as the Tequila Crisis.

The crisis began in December 1994 after Mexico devalued the peso. The country had accumulated substantial short-term dollar-linked obligations, while political uncertainty and declining reserves made it difficult to defend the currency’s exchange-rate regime.

The devaluation quickly became a confidence shock. Investors sold Mexican assets and then reassessed risks in other emerging markets, producing what became known as the Tequila Effect. The United States and international institutions assembled a large support package to help Mexico meet its external obligations.

The episode is distinct from the 1997 Asian financial crisis and the 1998 Russian crisis, though all three influenced how investors viewed emerging-market currencies. The nickname “Tequila Crisis” refers to Mexico, not to a particular stock exchange or a single company.