Why would a government allow currency speculation?
Speculators very rarely have large positions that come anywhere near what would count as a monopoly in other sectors. When Soros bet on the pound devaluing he only had a couple of billion dollar in his position. 
The distinction between a currency trader and a currency speculator can be hard to make in practice. The difference between market making and market speculation is one reason why the Volker rule has been difficult to write and implement. 
There is tremendous social value to informative prices. When prices are right, consumer and producers can rely on them to make better plans of economic activity. When prices are wrong (not reflecting the best information and most informed beliefs) those same agents are mislead by prices, leading to malinvestment and sub-optimal savings and consumption decisions.
It can be difficult to ban such speculative activity because it moves off-shore. In general, a country could ban speculation locally but not in other countries. The UK has little motive to help France ban speculation on the Euro in London. The only way to really do this effectively is with currency controls that make it difficult to bring currency out of the country. But currency controls can bring additional complications into currency markets, often a serious form of financial repression and results in exchange rates even less informative. 


Faced with these issues, most well run countries, most of the time,  would take functioning currency markets with the warts and wrinkles of speculators, volatility, and the like, over the downsides of trying to control the price of their own currency.