[hogFeast]

It depends what you mean by currency crisis.

But yes, it has happened. Russia 1998 is the most well-known example. Everyone believed that because Russia could issue GKOs in RUB, they wouldn't blow up like Asia...they did. This also happened, to a large extent, in Mexico in 1994 (Mexico actually issued tesobonos, they were domestic currency denominated but shifted the currency risk to taxpayers, they were quite a security).

The reason why is fairly simple: it doesn't matter if the debt is denominated in domestic or not, because people buy the bonds and then hedge their currency exposure which leads (eventually) to the domestic banking system having the same synthetic position as if your debt was denominated in a foreign currency.

The slight issue with historical examples is that the situation is correlated to high levels of financial globalization, which largely didn't happen until the 90s. But because something has never happened, doesn't mean it is impossible.

The point is confused though. The causes of currency crises are changes in capital flows. That is really just saying: the reason why currencies fall is because people sell. They don't really need some "explanation", they definitely contra-indicate with stuff like domestic currency debt...but there is no universal theory possible beyond: people sold the currency (and so currency crises have happened with capital outflows for some exogenous reason, war, etc.).

[mikeyouse]

In 1998, Russia was propping up their currency by buying USD and Eurobonds at staggering rates.. The crisis wasn't due to anything to do what the US is facing but not being able to pay their foreign creditors, not being able to call the Soviet-era debt back from debtors, and owing the IMF billions of dollars they couldn't repay.

Russia wouldn't have had a currency collapse if they had a floating currency to begin with;

> After reviewing the three generations of currency crisis models, we conclude that four key ingredients can trigger a crisis: a fixed exchange rate, fiscal deficits and debt, the conduct of monetary policy, and expectations of impending default.

https://files.stlouisfed.org/files/htdocs/publications/revie...

[hogFeast]

Correct, four things can trigger a crisis...in addition to many other things.

And that occurred after the currency crisis had started (the debt swap into Eurobonds was because of the GKOs). I am not sure what the US has to do with it. I am not sure what "Soviet-era debt" has to do with it (that debt was very soft, was rolled over multiple times in the early 90s, and wasn't related to Russia's problems). I am not sure what the IMF has to do with it (the IMF came in after it started...that is why the IMF came in).

Yes, it would have...that is self-evident. The reason the peg collapsed was because the free market/floating rate was lower. The only purpose of the peg is to stop the currency going down (again, this is a weird, self-evident proof...saying that the currency wouldn't have collapsed if they had a floating rate makes no sense, it would have collapsed faster).

[mikeyouse]

> I am not sure what "Soviet-era debt" has to do with it (that debt was very soft, was rolled over multiple times in the early 90s, and wasn't related to Russia's problems).

A large portion of their foreign denominated debt was from the Soviet era -- just a few years prior to 1998 they committed to repaying nearly $100 billion of that old debt. Russia was accepted into the "Paris Club" based on a valuation of their sovereign assets -- 1/4 of which were loans due to them from the Soviet era from Cuba/Vietnam and other satellite countries that had no capability to repay those loans. So the Soviet Era debt was a big portion of their liability and made up a substantial portion of their assets.

None of these things are remotely similar to the US situation of almost universally US debt denominated in USD. So I think GP is spot on when they say there's 0 chance of a currency crisis.