East Asian Currency Crises 'Rogue' Traders, Fundamentals, Contagion Francis X Colaco This paper argues that the recent currency crises in the east Asian emerging market economies highlight the need for further strengthening domestic macro-economic policies and domestic and international financial structures and rules of the game. Domestic financial liberalisation needs to be accompanied by sound macro- economic policies and strengthened legal, regulatory and supervisory structures. While speculation has a legitimate role to play in signalling distortions in macro-economic and financial frameworks, speculation can also be destabilising and lead to 'inappropriate' contagion. An international 'circuit-breaker' mechanism, to complement IMF-based mechanisms that are already in place to deal with currency crises once they have occurred, is urgently required to curb 'inappropriate' contagion effects and their heavy economic and socio-political costs.
