The Bank of Thailand's decision to float the baht marked a critical turning point in Southeast Asia's economic landscape. For years, Thailand maintained a fixed exchange rate system for the baht, which successfully stabilized its economy during rapid growth in the 1990s. However, increasing speculative attacks against the currency and mounting pressures from a burgeoning current account deficit prompted Thai authorities to shift to a floating exchange rate system on July 2, 1997. The move was intended to restore investor confidence and stabilize the economy by allowing market forces to dictate the value of the baht.

However, the decision triggered an immediate crisis instead. Investors, spooked by the uncertainties surrounding the baht’s value, began withdrawing their investments en masse, leading to a sharp depreciation of the currency. The downward spiral caused severe repercussions, not only for Thailand but also for neighboring economies, as fears of economic contagion spread across the region. Thus began the Asian Financial Crisis, which severely impacted Indonesia, South Korea, Malaysia, and the Philippines, leading to a series of crises in the financial markets of these countries.

The full scope of the economic collapse would not reveal itself immediately, but the initial fallout saw millions driven into poverty, numerous businesses collapsing, and a deficit in trade, ultimately leading to significant political and social upheaval in affected nations. The implications of the crisis underscored vulnerabilities in emerging markets and led to a reevaluation of economic policies across Southeast Asia.