Set out the signals that a currency crisis may be coming

Currency crises tend to follow recognisable build-ups, though timing is hard to call. Warning signs include a real exchange rate well above its historical average, falling reserves, deteriorating terms of trade, rapid domestic credit growth often after financial liberalisation, large capital inflows that start to reverse, inflation high relative to trading partners, broad money growing fast relative to reserves, weakening output and banking stress. Contagion from crises in similar economies can trigger an attack even when fundamentals are only moderately weak. Crises can hit countries whose current account and fiscal positions look comfortable, so relying on one or two headline measures is the trap. Early-warning systems combine many signals and accept false alarms.