Second, they permitted a growing overvaluation
in real terms, thereby squeezing exporters, and drawing too much investment spending into nontradeables
sectors. Third, they set the stage for financial panic, since Asian governments were
committed by their public promises to use the foreign exchange reserves to defend the currency,
even after everybody came to regard the rate as overvalued. This promise forced governments to
deplete their foreign reserves in a vain defense of the currency, and then it forced them to Abreak
their word@ when they had to abandon the currency defense once the foreign exchange reserves
are depleted.