Speculation

Controversy about currency speculators and their effect on currency devaluations and national
economies recurs regularly. Nevertheless, economists including Milton Friedman have argued that
speculators ultimately are a stabilizing influence on the market and perform the important
function of providing a market for hedgers and transferring risk from those people who don't
wish to bear it, to those who do. Other economists such as Joseph Stiglitz consider this
argument to be based more on politics and a free market philosophy than on economics.

Large hedge funds and other well capitalized "position traders" are the main professional
speculators. According to some economists, individual traders could act as "noise traders"
and have a more destabilizing role than larger and better informed actors .

Currency speculation is considered a highly suspect activity in many countries.
While investment in traditional financial instruments like bonds or stocks often is considered
to contribute positively to economic growth by providing capital, currency speculation does not;
according to this view, it is simply gambling that often interferes with economic policy.
For example, in 1992, currency speculation forced the Central Bank of Sweden to raise interest
rates for a few days to 500% per annum, and later to devalue the krona.
Former Malaysian Prime Minister Mahathir Mohamad is one well known proponent of this view.
He blamed the devaluation of the Malaysian ringgit in 1997 on George Soros and other speculators.

Gregory J. Millman reports on an opposing view, comparing speculators to "vigilantes" who simply
help "enforce" international agreements and anticipate the effects of basic economic "laws"
in order to profit.

In this view, countries may develop unsustainable financial bubbles or otherwise mishandle
their national economies, and foreign exchange speculators allegedly made the inevitable
collapse happen sooner. A relatively quick collapse might even be preferable to continued
economic mishandling. Mahathir Mohamad and other critics of speculation are viewed as trying
to deflect the blame from themselves for having caused the unsustainable economic conditions.
Given that Malaysia recovered quickly after imposing currency controls directly against
International Monetary Fund advice, this view is open to doubt.