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11Econ455:Economic Development inChinaLecture 22: April 4Financial ThreatsSandra PoncetLorch Hall, room 207 Email: [email protected]Office Hours:Mondays 16:30-18 & Wednesdays 10:30-122IntroductionFinancial crisesare not unique tocurrent financialsystems, ofcourse; history isreplete withbanking andexchange ratecrisesTypical distinction:Acurrency crisismay be said to occur when a speculative attack on theexchange value of a currency results in a devaluation (or sharp depreciation) ofthe currency, or forces the authorities to defend the currency by expendinglarge volumes of international reserves or by sharply raising interest rates.Abanking crisisrefers to a situation in which actual or potential bank runs orfailures induce banks to suspend the internal convertibility of their liabilities orwhich compels the government to intervene to prevent this by extendingassistance on a large scale.Asian Crisis was a twin crisisThe crisis problem is one of the dominant macroeconomic features ofour age.
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23IntroductionCan China suffer from an Asian‐like crisis?How likely is a crisis in China?Need for a panorama of Chinese weaknesses and strengthsNeed for a comparison of comparison of Asian and Chinese finances.Need for identify the potential triggers for a financial crisis4Lecture OutlineIntroductionI‐How economists understand crisesA‐Typical features of currency crisesB‐Two generations of crisis before the Asian CrisisC‐The Asian CrisisII‐Is a crisis plausible in China?A‐Unlikelihood of an Asian‐type crisisB‐But numerous fragilitiesC‐Potential triggersConclusion