Contagion

noun (uncountable in financial context; countable for specific episodes)

/kənˈteɪdʒən/

The transmission of financial distress — a currency crisis, banking failure, or sovereign default — from one country or institution to others through trade linkages, capital flows, investor sentiment, or common creditor channels; analogous to disease transmission. The 1997 Asian Financial Crisis, in which Thailand's baht collapse spread to Indonesia, South Korea, and Malaysia within months, is the canonical example. In the Indian context, the IL&FS collapse of 2018 triggered a contagion in the NBFC sector, drying up wholesale funding across the credit market.

✍️ Usage in a UPSC answer

The RBI's swift ₹1 lakh crore liquidity injection in September 2018 was explicitly calibrated to arrest contagion from the IL&FS default spreading to solvent mutual funds and bank balance sheets.

Synonyms

financial spilloversystemic spreadcrisis transmissionripple effectcross-border contagion

Antonyms

decouplingring-fencingfirewallfinancial isolationcontainment

🌱 Word Family

contagious (adjective), contagiously (adverb), contagiousness (noun), financial contagion (noun phrase)

🔡 Root

Latin contagio = contact, touch; con- = together + tangere = to touch

📜 Etymology

Directly from Latin contagio (a touching, infection), from contingere (to touch together), comprising con- (together) and tangere (to touch). Originally a medical term for the spread of disease by physical contact; its metaphorical application to financial markets became common following the international banking crises of the 1930s and gained wider analytical currency after 1997.

🧠 Memory Hook

CONTAGION = CONtact + TAGIO (touching) — financial diseases spread through CONTACT, just like the plague. When one bank sneezes (defaults), the entire financial system catches a cold.

💰 Indian Economy 📖 Seen in: Indian Economy — Growth, Planning & De...

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