ABSTRACT
It is now commonly understood that what can be called a dual mismatch, of currency and of maturity, was one of the main causes of the East Asian crisis of 1997-99. As early as December 1997, Donald Tsang, the financial secretary of Hong Kong, stated that ‘the Asian currency problem is essentially a funding mismatch compounded by ineffective intermediation’ (Tsang 1997). The de facto dollar peg maintained by the crisis-hit countries had resulted in huge euphoria-driven capital inflows, which in 1996-97 reversed direction, resulting in the free fall of exchange rates and, in some cases, the collapse of financial systems. The combination of a volatile yen/dollar rate and the de facto dollar peg accelerated the boom-and-bust cycle, although the exchange rate regime and yen/dollar fluctuations were not the only causes of the crisis.
