How currency manipulation works

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MANIPULATING MARKETS: Seventeen banks are accused of creating fictitious bids and offers to distort demand and supply in order to increase profits. PICTURE: AFP
MANIPULATING MARKETS: Seventeen banks are accused of creating fictitious bids and offers to distort demand and supply in order to increase profits. PICTURE: AFP

Currency trading is buying and selling one country’s currency for another. The participants in currency trading are dealers, customers and brokers.

Dealers are large financial institutions or banks that accept orders from customers to buy and sell currencies from customers.

They are commonly known as market makers. Customers are entities or individuals seeking to exchange currencies by placing orders for trades with dealers.

They include corporations and asset managers such as hedge funds, mutual funds, pension funds, and various government financial institutions such as central banks and some individuals who exchange substantial quantities of currency.

Brokers are intermediaries that facilitate trade between the dealers. The Competition Commission said there were 17 banks participated in price fixing and market allocation in the trading of foreign currency pairs involving the rand since at least 2007.

It referred the case to the Competition Tribunal after concluding an investigation that began in 2015.

“The respondents manipulated the price of bids and offers through agreements to refrain from trading and creating fictitious bids and offers at particular times,” the Pretoria, South Africa-based commission said in an e-mailed statement on Wednesday.

“They assisted each other to reach the desired prices by coordinating trading times. They also created fictitious bids and offers, distorting demand and supply in order to achieve their profit motives,” the commission said.

A 2014 article on website OurFuture.org said currency manipulation (by countries and individuals) cost up to 5.8 million American jobs and costs the US GDP up to $720bn.

Who benefits? There are advantages to various interests if they can keep exchange rates high or low.

Someone holding on to a lot of cash might want the value of their currency to become and stay “strong” so they can go out into the world and buy more things. But someone who makes something might want the value of their local currency to become and stay “weak” so the price of what they are selling is more competitive elsewhere.

In other words, investors want their country’s currency to be strong at any given time and manufacturers want their country’s currency to be weak at any given time. Inside every country and every system there are competing interests.

When markets are not transparent and are instead corrupt and manipulable, the beneficiaries of the manipulation naturally use the advantage they gain to further manipulate the process.

Presently in the countries that are manipulating currency – and in those not confronting and stopping that manipulation – the interests of those who benefit from the manipulation are winning.

A February report from the Economic Policy Institute, Stop Currency Manipulation and Create Millions of Jobs, shows how currency manipulation by China and others are costing the US between 2.3 million to 5.8 million jobs. – 701295

TNA Reporter

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