Why would a government allow currency speculation?

Question

I would like to know the reasons for any government to allow currency speculation. What is the benefit for a country and for it's people if the currency speculation is allowed?

• My cousin's farm is producing vegetables. Providing some goods that the consumers need or desire and they are ready to pay for.
• My fruit shop is selling fruits and vegetables. Providing a service that the consumers need or desire and they are ready to pay for.
• My uncle's credit bank is helping the people who can save enough to buy a car today instead of waiting many years until they saved enough. Providing a service that the consumers need or desire and they are ready to pay for.
• My aunt's currency trading company is helping the people based in the EU to buy products or services made in the USA. Providing a service that the consumers need or desire and they are ready to pay for.

If I, or my cousin or my uncle create monopolies or cartels and speculate and fix prices, artificially inflating the cost of the goods/services we provide, the government will put punish us for that, because we harm the consumers. That's why most countries have a Competition Council. But if my aunt creates a monopoly or cartel and buys large amounts of currency (becoming a speculator instead of being a trader) artificially increasing the price of the US dollar for the EU based consumers, reducing their buying power and therefore harming them, shouldn't the government react in the same manner?

Now, the currency speculators do not produce any good or service that consumers actually need or desire. Not even the international traders need to buy currency from speculators—they can buy the currency from the international traders based in the targeted country, or from the currency traders. So, nobody actually need the speculators "services". By the contrary, their actions will make the target currency to be weaker (so the working people can buy less with their money - they have less buying power), and they will make profit from this.

At the end of the day, me, my cousin, my uncle and my aunt will be able to buy less food or clothes or computers with our income, even though we keep producing goods and services the consumer need, helping them to get what they need. And in the same time, the speculators can buy a lot of food or clothes or computers even though they produced nothing that the consumers needed, all that at the expense of the consumers, harming them.

So we have a situation where money do not measure work anymore. Your money do not measure your capacity to produce some needed goods or services. Now the money measure your capacity to speculate and to harm other people by reducing their buying power, driving them poorer.

A very basic logic says that the money were created in order to help the people who produce goods and services to trade those goods and services. So the reason for using money (currency) is because it's supposed that the use of money will help them, instead of harming them. If using money hurts me more than helps me, I will think very seriously about not using money anymore.

It can't be hard at all for a government to detect if Brian Jones buys currency in order to actually buy goods with it or to simply speculate the currency value. They simply have to look at what Brian Jones is buying with the currency once it has it. The government can put a penalty (a fine) for speculating the currency so the consumers and the working people do not have to suffer from the speculation. And then it won't be profitable anymore to speculate a currency.

And then, what would be a government's arguments for allowing the speculation with it's own currency?

I provided all the data above in order to avoid superficial answers like "currency speculators help the people to buy foreign currency" - there are currency traders for that.

Answer 1

1. Speculators very rarely have large positions that come anywhere near what would count as a monopoly in other sectors. When Soros bet on the pound devaluing he only had a couple of billion dollar in his position.
2. The distinction between a currency trader and a currency speculator can be hard to make in practice. The difference between market making and market speculation is one reason why the Volker rule has been difficult to write and implement.
3. There is tremendous social value to informative prices. When prices are right, consumer and producers can rely on them to make better plans of economic activity. When prices are wrong (not reflecting the best information and most informed beliefs) those same agents are mislead by prices, leading to malinvestment and sub-optimal savings and consumption decisions.
4. It can be difficult to ban such speculative activity because it moves off-shore. In general, a country could ban speculation locally but not in other countries. The UK has little motive to help France ban speculation on the Euro in London. The only way to really do this effectively is with currency controls that make it difficult to bring currency out of the country. But currency controls can bring additional complications into currency markets, often a serious form of financial repression and results in exchange rates even less informative.

Faced with these issues, most well run countries, most of the time, would take functioning currency markets with the warts and wrinkles of speculators, volatility, and the like, over the downsides of trying to control the price of their own currency.

Answer 2

Soros is like a ticket scalper buying up all the tickets and selling them for a higher price and adding no value but taking value like a leech. Look at the below picture, Soros would be on the left. What happens is when too much power(money) is in too few hands corruption and greed almost always win.