The Mexican currency crisis of 1994 was known as the Tequila Crisis and caused a major emerging-market stock sell-off.
The crisis began after Mexico devalued the peso in December 1994. The country had accumulated substantial short-term dollar-linked obligations, and investors rapidly lost confidence in the government's ability to maintain the currency's value. Capital flowed out, interest rates surged, and the peso fell sharply.
The shock spread beyond Mexico as investors reassessed other emerging markets, a spillover sometimes called the tequila effect. The United States and other countries helped organize a rescue package, while Mexico adopted measures to stabilize its finances. The nickname refers to tequila as a symbol associated with Mexico, not to alcohol as a cause of the crisis. The episode demonstrated how quickly currency weakness could transmit stress to equity markets.