IDEAS home Printed from https://ideas.repec.org/a/bpj/globdv/v4y2014i2p199-211n3.html
   My bibliography  Save this article

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

Author

Listed:
  • 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
    DOI: 10.1515/jgd-2013-0040
    as

    Download full text from publisher

    File URL: https://doi.org/10.1515/jgd-2013-0040
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.
    File URL: https://libkey.io/10.1515/jgd-2013-0040?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Dilip Abreu & Markus K. Brunnermeier, 2003. "Bubbles and Crashes," Econometrica, Econometric Society, vol. 71(1), pages 173-204, January.
    2. Ware, Roger & Winter, Ralph, 1988. "Forward markets, currency options and the hedging of foreign exchange risk," Journal of International Economics, Elsevier, vol. 25(3-4), pages 291-302, November.
    3. Williams,Jeffrey C. & Wright,Brian D., 2005. "Storage and Commodity Markets," Cambridge Books, Cambridge University Press, number 9780521023399, September.
    4. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
    5. Basu, Kaushik & Singh, Nirvikar, 1990. "Entry-Deterrence in Stackelberg Perfect Equilibria," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(1), pages 61-71, February.
    6. 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.
    7. 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.
    8. Encaoua, David & Jacquemin, Alexis, 1980. "Degree of Monopoly, Indices of Concentration and Threat of Entry," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 21(1), pages 87-105, February.
    9. 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.
    10. Basu, Kaushik, 2012. "How to devalue exchange rates, without building up reserves: Strategic theory for central banking," Economics Letters, Elsevier, vol. 117(3), pages 758-761.
    11. Oliver D. Hart, 1985. "Monopolistic Competition in the Spirit of Chamberlin: A General Model," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 52(4), pages 529-546.
    12. Kyle, Albert S, 1985. "Continuous Auctions and Insider Trading," Econometrica, Econometric Society, vol. 53(6), pages 1315-1335, November.
    13. 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.
    14. Mark Armstrong Author-Email: mark.armstrong@ucl.ac.uk Author-Workplace-Name: University College of London, 2006. "Competition in Two-Sided Markets," RAND Journal of Economics, The RAND Corporation, vol. 37(3), pages 668-691, Autumn.
    15. John McLaren, 1999. "Speculation on Primary Commodities: The Effects of Restricted Entry," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 66(4), pages 853-871.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Basu, Kaushik, 2013. "The art of currency manipulation : how to profiteer by deliberately distorting exchange rates," Policy Research Working Paper Series 6608, The World Bank.
    2. Gabriel Desgranges & Celine Rochon, 2008. "Conformism, Public News and Market Effciency," OFRC Working Papers Series 2008fe16, Oxford Financial Research Centre.
    3. Umut c{C}etin & Albina Danilova, 2014. "Markovian Nash equilibrium in financial markets with asymmetric information and related forward-backward systems," Papers 1407.2420, arXiv.org, revised Sep 2016.
    4. Brockhaus, Jan & Kalkuhl, Matthias & Kozicka, Marta, 2016. "What Drives India’s Rice Stocks? Empirical Evidence," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235659, Agricultural and Applied Economics Association.
    5. Kornher, Lukas & Kalkuhl, Matthias, 2013. "Food Price Volatility in Developing Countries and its Determinants," Quarterly Journal of International Agriculture, Humboldt-Universitaat zu Berlin, vol. 52(4), pages 1-32, November.
    6. Basu, Kaushik, 2005. "Labor Laws and Labor Welfare in the Context of the Indian Experience," Working Papers 05-17, Cornell University, Center for Analytic Economics.
    7. Jean-Paul Chavas, 2008. "On Storage Behavior Under Imperfect Competition, with Application to the American Cheese Market," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 33(4), pages 325-339, December.
    8. Kozicka, Marta & Kalkuhl, Matthias & Saini, Shweta & Brockhaus, Jan, 2014. "Modeling Indian Wheat and Rice Sector Policies," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 169808, Agricultural and Applied Economics Association.
    9. Zhou, Xinquan & Bagnarosa, Guillaume & Gohin, Alexandre & Pennings, Joost M.E. & Debie, Philippe, 2023. "Microstructure and high-frequency price discovery in the soybean complex," Journal of Commodity Markets, Elsevier, vol. 30(C).
    10. Ismail Saglam, 2019. "Perverse Effects of Non-sterilized Interventions on Spot Foreign Exchange Rates," South Asian Journal of Macroeconomics and Public Finance, , vol. 8(1), pages 26-56, June.
    11. David Andrés‐Cerezo & Natalia Fabra, 2023. "Storing power: market structure matters," RAND Journal of Economics, RAND Corporation, vol. 54(1), pages 3-53, March.
    12. Ping-Chen Tsai & Chi-Ming Tsai, 2021. "Estimating the proportion of informed and speculative traders in financial markets: evidence from exchange rate," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 16(3), pages 443-470, July.
    13. Richa Shukla & Surajit Bhattacharyya & K. Narayanan, 2016. "Firm Size vis-Ã -vis Industry Size and Innovation in a Dominant Firm-fringes Oligopoly Model," Foreign Trade Review, , vol. 51(1), pages 13-25, February.
    14. Tolotti, Marco & Yepez, Jorge, 2020. "Hotelling-Bertrand duopoly competition under firm-specific network effects," Journal of Economic Behavior & Organization, Elsevier, vol. 176(C), pages 105-128.
    15. Young, David P. T., 1997. "Dominant firms, price leadership and the measurement of monopoly welfare losses," International Journal of Industrial Organization, Elsevier, vol. 15(5), pages 533-533, August.
    16. Viet Hoang Nguyen & Yongcheol Shin, 2011. "Asymmetric Price Impacts of Order Flow on Exchange Rate Dynamics," Melbourne Institute Working Paper Series wp2011n14, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    17. Andrea Prat & Amil Dasgupta, 2005. "Reputation and Price Dynamics in Financial Markets," 2005 Meeting Papers 222, Society for Economic Dynamics.
    18. Jasmina Hasanhodzic & Andrew Lo & Emanuele Viola, 2011. "A computational view of market efficiency," Quantitative Finance, Taylor & Francis Journals, vol. 11(7), pages 1043-1050.
    19. Nuttathum Chutasripanich & James Yetman, 2015. "Foreign exchange intervention: strategies and effectiveness," BIS Working Papers 499, Bank for International Settlements.
    20. Bask, Mikael & Widerberg, Anna, 2009. "Market structure and the stability and volatility of electricity prices," Energy Economics, Elsevier, vol. 31(2), pages 278-288, March.

    More about this item

    Keywords

    Cournot oligopoly; currency depreciation; exchange rates; market manipulation;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:globdv:v:4:y:2014:i:2:p:199-211:n:3. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyter.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.