India’s currency trading market is alive with plenty of issues recently. For several months there have been issues for the rupee and India’s currency reserves. It is all related to the USD, which is fluctuating and most often losing ground against other currencies. India’s reserves fell by over $1 billion in the most recent week, which is only slightly less than the drop in the previous week. The reserves fell because the USD value decreased on U.S. government shutdown issues. However, this is not the only factor that is concerning the Reserve Bank of India.
Currency Trading Issues with Reserves
The currency reserves are always expressed in USD, which is going to reflect the depreciation or appreciation of all currencies including non-US ones like the sterling, yen, and euro. Despite the fact that other currencies are a part of why the reserves fell in currency trading much of the answers are still found within the USD. Since these other reserves do matter the IMF reserve’s position for India was able to jump and therefore they have more special drawing rights than in recent weeks. Gold reserves did not change at all for India.
However, the reserves falling in USD numbers while other currencies gained is not the only issue afoot in the forex market. India’s rupee is under review for some market manipulation in which several large banks are suspected of trying to lower the rupee rate, while increasing the USD rate. Market manipulations are on a grand scale according to Switzerland and England’s central banks. According to these two banks and the RBI, several interbank participants tried to manipulate the benchmark rate, which placed manipulation on the USD for a favourable gain. But, this move actually lowered the value of the rupee. There is a suspected 5% interference that occurred in the currency trading market. This trade is allegedly in favour of the USD in which the rupee lost significantly in value in a day’s time.
The issue is currently being investigated by numerous parties including the RBI and several central banks throughout Europe.
Currency Trading Manipulation Illegal?
There is a fine line between illegal and legal market manipulation. Governments manipulate the foreign exchange market all the time. Central banks decide if the interest rate needs to be higher or low to reduce or increase inflation, thereby helping the currency gain or lose value as well as to strengthen the overall economy. Currency trading in which such a thing is not approved is not always considered legal. The banks and traders trying to manipulate the markets will most likely be fined for their interference of the benchmark rates.
India’s currency was not the only one being manipulated, but it was at the interbank level, the banks that set the market rates. They waited for the 60 second window when benchmark rates were being fixed for the day to put in trades. These trades provided profit for those behind them, but it affected the entire currency trading market and without a concrete need. Government interference is about stability needs, whereas this was greed driven.