Even rational investors join the herd. 20 21  Even hedging simply shifts this to another party.
Some have described this process of fixed exchange rates as “guarantees”, but this misunderstands the nature of the problem: certainly, investors did not expect the exchange rate to depreciate much, but they knew that depreciations had occurred in the past, and those who had exposures in currencies other than the US dollar (by far the majority – see Goldstein and Hawkins (1998)) had been continually experiencing changes in the relevant exchange rate.