A Simple Fix for Foreign Exchange Market Manipulation

In the deregulated floating-rate foreign exchange market (forex) the Euro has been losing ground to the dollar and the financial press is taking notice.  In typical fashion, the media has pointed to obvious political and economic events taking place in Europe in the U.S. to explain the shift in the forex.  The press implies that actual economic fundamentals are shaping movements in the forex; but in a deregulated floating-rate forex market, speculation and not economic fundamentals rule the day.

In this Reuters article, it is reported that “some traders” are citing the victory by anti-austerity parties in Spain as a factor.  In ludicrous fashion, Reuters states that while “the U.S. economy's recovery has not been as robust as many expected . . .  [n]evertheless, bits and pieces of upbeat data released this month have shown that the economy still stands above those of other developed economies such as the euro zone and Japan.”

By simply citing the most recent economic and political-economic events in the U.S. and Europe as the “cause” of the forex movement, Reuters (and the rest of the financial press) obscures the true factor driving the movement of the major currencies in the forex: financial speculation on a gargantuan scale. 

Financial speculation in world currencies has been the main driver of movement in the forex since 1973, when the Bretton Woods system came to an end heralding the start of the floating-rate market.  Under the Bretton Woods system, currency values where fixed to each other in a system that, while not perfect, kept values from fluctuating wildly.  Stability and economic fundamentals were the main drivers of currency movements under the Bretton Woods fixed-rate system.  When movement did occur, it was within a narrow band of 2-3%, preventing drastic and unanticipated loses for real producers in the forex market.

Today, only the illusion that economic fundamentals drive the forex market remains.  In reality, the rise and fall of the forex is driven by large private institutional market players – such as large banks and hedge funds – who use their incredible sums of money to take short or long positions on currencies.  Amazingly, buying and selling of currencies for immediate delivery is not considered an investment product, and therefore is not subject to the rules and regulations that govern most financial products.

Last week, Barclays, Royal Bank of Scotland, JP Morgan, UBS, Citigroup and Bank of America were all fined for blatant manipulation of the forex market, and the Telegraph is now reporting that Banks are bracing for hundreds of millions of pounds in new claims for foreign exchange manipulation from class-action lawsuits. 

Today, unfortunately for humanity, the idea of a fixed-exchange rate forex market fails to register as a solution to the problems of financial speculation and diminishing world productivity.  Today’s currency traders and their regulators cannot imagine anything other than a floating rate forex market – despite the fact the best historical example of rising per-capita world productivity occurred under the post-WW2 Bretton Woods system. 

The financial institutions and the governments that claim to regulate currency trading for the good of everyone cling to flimsy justifications for a floating rate forex.  The leading justification is the idea of the “free-market.”  The fiction of a “free market” forex is that economic fundamentals between countries drive slow, narrow, and anticipated fluctuations in the forex market.  The truth is that national and super-national agreements on fixed-exchange rates are absolutely indispensible in maintaining a forex market driven by actual economic fundamentals.  It is an absolute fiction that a deregulated floating rate forex market clears currency values on a daily basis based on actual economic events. 

Another fiction governments and institutions tout is the idea of a naturally occurring “business cycle.”  Many duped economists and journalists have sought to explain the movements in the forex markets since 1973 as a product of the business cycle.  In the minds of the duped economists and journalists, rapid and successive booms and busts in currencies are a byproduct of the human situation – which no government can do anything about. The historical reality that better systems (like Bretton Woods) have already existed and passed the test is ignored.

The most serious by-product of the speculation-led movements in the forex is the decline in per-capita world production and growth.  Actual producers of goods and capital products (like machine tools and factories) need mid-term and long-term calm and stability in the forex market in order to justify large capital outlays in productive capacity.  When the speculators are gaming the forex, actual productive world growth takes a back seat to financial windfall for the banker class.  The market is not rigged in favor of production and growth (like under Bretton Woods), but is rigged for the benefit of a tiny world elite of financial parasites. 

The idea of a fixed-rate forex market must make a comeback if we are to cure one of the major causes of world depression and the boom and bust cycles that have dominated the financial landscape since 1973.  The forex market must once again be rigged to ensure the future of human development as opposed to being rigged to ensure the continued domination of humanity by a perverted and sickened financial elite.

Jeffrey Jackson, Esq.