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

15 Pages Posted: 20 Apr 2016

See all articles by Kaushik Basu

Kaushik Basu

Cornell University - Department of Economics; IZA Institute of Labor Economics; Brookings Institution

Date Written: September 1, 2013

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.

Keywords: Markets and Market Access, Emerging Markets, Debt Markets, Currencies and Exchange Rates, Economic Theory & Research

Suggested Citation

Basu, Kaushik, The Art of Currency Manipulation: How to Profiteer by Deliberately Distorting Exchange Rates (September 1, 2013). World Bank Policy Research Working Paper No. 6608. Available at SSRN: https://ssrn.com/abstract=2327930

Kaushik Basu (Contact Author)

Cornell University - Department of Economics ( email )

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IZA Institute of Labor Economics

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Brookings Institution ( email )

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