money-supply, government, speculationWhat are the measures that need to be undertaken in order to prevent people or corporations from manipulating the value of currencies for profit (by trading between currencies and hoarding the money)? What are the trade-offs of the government countering the manipulation on the value of its currency (for example, by releasing more of it or trading its reserves), as opposed to leaving the market be?
It really depends on what kind of “speculation”. Answers will be specific to the country and the speculative attack.
For example when the Hong Kong dollar was attacked in 1997 it caused huge spikes in the interest rates; the plan of the speculators was to short the Hang Seng index that would inevitably collapse due to high interest rates.
In this case the Hong Kong Monetary Authority repelled the attack by buying huge chunks of stocks making speculators lose their bets and forcing them to stop.
That’s an example of countering speculation without ever touching the currency market.
In general though, currency is like any other good: supply and demand. The usual models apply.
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