Currency-speculation mainly aims at making profit by selling or buying currency on the expected rise or fall in its value. Data points that during 1975, 20 percent of the total foreign exchange transactions comprised of speculation and today’s figure says that the percentage of real economy in foreign-exchange transactions is lower than that of speculation. Contrary to the Economics text-books, individuals and corporations do not compete with each-other for resources and market; rather they struggle for money through market and resources. The floating currency or exchange-rates has made currencies an asset giving rise to a new head for investment by speculating on the future movements of the popular currencies. It has now become a part of the investment portfolios among the other popular assets for investing money. It involves a low transaction cost and one can access the market twenty-four hours.
The unprecedented increase in currency-speculation is, generally, attributed to three interacting factors. The dumping of the gold-standard in the year 1971, by the US paved way for the after-development in currency-speculation, and made the trade in the foreign exchange market responsible for movements in the value of the most acceptable currencies. Economies with their higher stages of development and the efficiency in governance, effective monetary and fiscal policies, were given more value for their currencies than countries bad and in efficient government practices. The deregulation effected in the 1980s and the Baker plan by the World Bank and International Monetary Fund (IMF) gave more scope to the international flow of capital for the organizations that previously resorted to speculation. And, lastly, the innovation in the technology of money-transfer, computerization and electronification, almost revolutionized the money-market all-over the world.
The effects of currency-speculation are scary and a threat to the national governments. Currency-speculation works through expectations regarding the change in the currency or money supply and is now, not only constrained to the expectations rather speculators, actually, affect the money supply by holding or releasing it in large quantities. By doing this they affect the economic-policies just for getting their ends and, in fact, they make the national economic policies ineffective in achieving their desired objectives. It has reduced the power of governance to almost zero. The frequent changes, appreciation and depreciation, in the value of the currencies that are in demand are often credited to large scale speculation. Among the examples, fall of the British Sterling, by George Soros, in 1991, and Mexico’s currency in 1994 are much defamed. George Soros, mentioned above, is the greatest speculator of all times.
The unprecedented increase in currency-speculation is, generally, attributed to three interacting factors. The dumping of the gold-standard in the year 1971, by the US paved way for the after-development in currency-speculation, and made the trade in the foreign exchange market responsible for movements in the value of the most acceptable currencies. Economies with their higher stages of development and the efficiency in governance, effective monetary and fiscal policies, were given more value for their currencies than countries bad and in efficient government practices. The deregulation effected in the 1980s and the Baker plan by the World Bank and International Monetary Fund (IMF) gave more scope to the international flow of capital for the organizations that previously resorted to speculation. And, lastly, the innovation in the technology of money-transfer, computerization and electronification, almost revolutionized the money-market all-over the world.
The effects of currency-speculation are scary and a threat to the national governments. Currency-speculation works through expectations regarding the change in the currency or money supply and is now, not only constrained to the expectations rather speculators, actually, affect the money supply by holding or releasing it in large quantities. By doing this they affect the economic-policies just for getting their ends and, in fact, they make the national economic policies ineffective in achieving their desired objectives. It has reduced the power of governance to almost zero. The frequent changes, appreciation and depreciation, in the value of the currencies that are in demand are often credited to large scale speculation. Among the examples, fall of the British Sterling, by George Soros, in 1991, and Mexico’s currency in 1994 are much defamed. George Soros, mentioned above, is the greatest speculator of all times.
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