How big a role do speculators play in currency exchange?
A big role. Currency traders and speculators are the same people. If you’re a currency trader and you think one currency is likely to weaken, you’ll sell that currency as quickly as possible. That lowers the price, or the value of that currency. Currency traders are often on the opposite side of “fundamental” trades, which are purchases of goods, or mutual fund investments, or international investments done for strategic corporate reasons, let’s say—like if General Motors buys a factory in China. There’s probably at least 10 times as much currency trading that’s speculative, rather than fundamental. So when consumers hear of “speculators,” that sounds like something that could be destabilizing. Is it? I don’t think currency speculators are a force for instability. They create liquidity. They create the whole market for currencies, really. So where do threats of instability come from? There are several major factors. Inflation is a big one. Right now, inflation is generally quite low, a
