Currency Devaluation and the causes of the Tequila Crisis I was reading about some of the famous crisis that happened in the past and i came across "the tequila crisis" in mexico during 1994-96.

As a background, The Tequila crisis (also known as the Mexican Peso Crisis or December mistake crisis) was a currency crisis sparked by the Mexican government's sudden devaluation of the peso against the U.S. dollar in December 1994, which became one of the first international financial crises ignited by "capital flight", as investors pulled out of Mexico.

The extended issuance of Tesbonos, a mexican bond also contributed to the crisis

What are the mechanisms for a currency devaluation in a case like this?
The Mexican government has a complicated history of currency intervention, which can be read about in a detailed timeline here.

However, in 1994 the devaluation was caused by the end of government intervention. Up until that date the Mexican government had a set range of USD values that the peso could float within, so a sort of flexible peg to the USD. In December of 1994 the government decided to allow the peso to float freely and the peso was devalued naturally through market forces.