The Justice Department confirmed yesterday that it has begun a formal investigation into charges of collusion between major U.S. banks in foreign currency trading operations.

A spokesman said the department issued "several CDI's (compulsory demands for information)" in connection with the probe about a month ago. CDI's are similar to subpoenas.

Whenever the department does issue CID's, it signifies the opening of a formal investigation, government officials said.

The Justice Department, and six other federal regulatory and law enforcement agencies, opened preliminary investigations into the foreign exchange area several months ago, following the filing of a lawsuit against Citibank of New York-the nation's second largest bank-by one of its former European officers.

The former employee, David Edwards, alleged that he was wrongfully dismissed by the bank because he continually raised questions about the legality of certain bank currency exchange policies overseas.

But around the same time, Edwards published a fictionalized account of a day in a European trading room in MBA magazine. That magazine story hinted that bank traders in several cities, working in concert, were able to drive down the price of the dollar in such a way as to allow the banks to profit.

Edwards confirmed yesterday that he had received one of the Justice Department requests for information. He would not comment on the contents of that request, except to say that the government was seeking to determine if any of the fictionalized characters in his magazine article represented real people.

Other requests were reportedly sent to bank officials.

The Edwards case has also led to investigations by the Securities and Exchange Commission, Office of the Comptroller of the Currency, the Federal Reserve Board, the United States Attorney in the Southern District of New York, and several congressional committees.

Those investigations center mostly on the issue of whether or not a handful of major banks have the ability to manipulate the price of currencies through the actions of their currency traders.

Most bank experts deny such activity occurs, pointing to the huge size of the world money markets and relatively small role any one trader or transaction can make. They say that it is impossible to influence the market on a long term basis.

But some bankers have acknowledged that a series of large transactions can have short term influence on the money markets, a fact that has concerned bank regulators in several countries.