Is speculation destabilizing? This paper explores the question of whether free exchange rates result in more stability than optional systems. The study includes development of a linear, stable equilibrium model of a free rate system; examination of speculative-induced movements in market exchange rates; and simplification of mathematics to allow for speculative shifts under a narrow gold band and for full interaction between spot and foreign exchange rates. Conclusion: Speculators are stabilizers under absolutely free rates, relative stabilizers under a wide gold band, and destabilizers under a narrow gold band, a theory qualified by political problems and uncontrollable exogenous forces.