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The Art of Currency Manipulation: How Some Profiteer by Deliberately Distorting Exchange Rates

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  • Basu Kaushik

    () (The World Bank, 1818 H Street, DC 20433, NW, Washington; and Department of Economics, Cornell University Ithaca, New York 14853)

Abstract

A frequent charge in foreign exchange markets in developing countries is that of manipulators being at work. Since to buy is to raise prices and to sell is to lower prices, the question that naturally arises is whether the widespread charge of market manipulation is valid. The paper shows that (whether or not “widespreadness” has any merit) it is possible for a player to manipulate and profiteer. By using some simple principles of game theory, the paper outlines a strategy that a manipulator may use. The aim of this paper is not to provide a manual for the manipulator but to enable the regulator to understand the art and develop policies to curb manipulation.

Suggested Citation

  • Basu Kaushik, 2014. "The Art of Currency Manipulation: How Some Profiteer by Deliberately Distorting Exchange Rates," Journal of Globalization and Development, De Gruyter, vol. 4(2), pages 199-211, February.
  • Handle: RePEc:bpj:globdv:v:4:y:2014:i:2:p:199-211:n:3
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    References listed on IDEAS

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    1. Dixit, Avinash & Stern, Nicholas, 1982. "Oligopoly and welfare : A unified presentation with applications to trade and development," European Economic Review, Elsevier, vol. 19(1), pages 123-143.
    2. Kym Anderson & Maros Ivanic & William J. Martin, 2014. "Food Price Spikes, Price Insulation, and Poverty," NBER Chapters,in: The Economics of Food Price Volatility, pages 311-339 National Bureau of Economic Research, Inc.
    3. Christopher R. Knittel & Robert S. Pindyck, 2016. "The Simple Economics of Commodity Price Speculation," American Economic Journal: Macroeconomics, American Economic Association, vol. 8(2), pages 85-110, April.
    4. Basu, Kaushik & Varoudakis, Aristomene, 2013. "How to move the exchange rate if you must: the diverse practice of foreign exchange intervention by central banks and a proposal for doing it better," Policy Research Working Paper Series 6460, The World Bank.
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