Currency crisis is a violent process of restoring external equilibrium in a country through strong depreciation of the national currency. It is preceded by an earlier intensification of disequilibrium and lack of adjustment actions, that could restore this external disequilibrium. The increase of external disequilibrium is connected with foreign capital inflow at a fixed exchange rate. Insufficiently flexible exchange rate and higher inflation in the country in comparison to abroad are enough reasons for the external trade deficit to emerge and deepen. Since then real appreciation of the local currency occurs. Anti inflationary measures, consisting, among others, in reducing lending activity of banks through a high interest rate, may result in an interest rate disparity and enhance disequilibrium. The process could be halted through floating the exchange rate. Politicians, however, often oppose to make the rate more flexible.

Although currency crisis cannot happen without short-term capital inflow, the latter is not the reason of the crisis. It is the result of systemic problems in some countries using foreign capital, i.e. inelastic salaries and insufficient budget constraints at the microeconomic and governmental levels.