March 23, 2011 Reading Time: < 1 minute

“The ostensible reason for the currency interventions was to promote stability. According to David Mann, head of research for the Americas at Standard Chartered Bank. “This is about limiting volatility and reducing uncertainty.”

However, if stability is the goal, then fighting speculators is the exact wrong approach. Speculators actually reduce volatility, insofar as they are profitable. After all, the goal of the speculator is to “buy low, sell high,” or (for an overpriced asset) “short-sell high, cover low.” Either way, the speculator acts to push an asset price to its future level, and the entire price path is smoother because the speculator grasps the situation earlier than others.” Read more

“The Japanese Currency Intervention”
Robert P. Murphy
Mises Daily, March, 23, 2011.
Via the Ludwig von Mises Institute. 

Image by Boaz Yiftach / FreeDigitalPhotos.net.

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