In 1972, when the world was plagued by monetary upheavals, the economist James Tobin submitted a proposal to tax currency transactions, which would enable governments to regain their independent macroeconomic policy, at a conference at Princeton University. The main objective of such a tax is to reduce fluctuations in the exchange rates. The tax is in line with the objectives of increasing the autonomy of monetary policy, fighting against the volatility of the exchange market, obtaining revenue for debt relief for developing countries, and serving as an obstacle to speculative attacks on fixed exchange rate systems.
In 1992 and 1993 during the European monetary crises or in the wings of the G7 in Halifax in 1995, the tax resurfaced. Each time, it seemed doomed it was regarded as "idealist" and "unrealistic." Also, the idea of such a tax was developed in the context of birth in the international system of floating exchange rates. Is such a tax really relevant, or is it a utopia?
James Tobin's proposal was formulated in the context of abandonment of the convertibility of dollar / gold and switching to a system of flexible exchange rates. It aims to limit capital flows in the short term of the foreign exchange market to prevent currency crises, by taking a small amount of tax on each transaction involving currencies. Each transaction would be taxed and it would be more expensive (the number of round trips).
By increasing the cost of transactions, the tax led operators to select operations by retaining only the most profitable or justified. Moreover, applied uniformly to all transactions, it lengthens the time horizon of agents by hitting more than proportionately short-term operations. This is actually the application of the theories of John Maynard Keynes, as recalled by J. Tobin, who proposed to tax capital flows to bond investors to more sustainable assets.
Thus, a tax on the capital flows, however small, would hamper their mobility and prevent the emergence of speculative bubbles. When we know that 80% of the transactions on the foreign exchange market correspond to round trips, this reduction, proponents of the tax, is a central issue of market regulation exchange.
Tags: tax currency transactions, monetary policy, fixed exchange rate systems, foreign exchange market, short-term operations, bond investors, market regulation
[...] A tax would in effect limit the herd behavior so that fuel self- sustaining these changes upward or downward a motto because the cost of the tax is inversely proportional to the duration of a placement, operator must ensure that this is related to changes in fundamentals and therefore is sustainable Revenue received by the Tobin tax It is possible to make an endless list of action programs internationally that the tax could fund. Reducing the debt of least developed countries (LDCs) still seems a priority. At a time when the official development assistance (ODA) decreased significantly, the Tobin tax was a major potential asset, while the LDCs' external debt was estimated at 150.4 billion dollars in 1998, according to World Bank statistics. II. A tax often described as utopian and meets many objections to the benefit of more realistic alternatives A. [...]
[...] James Tobin had also strongly condemned the latter interpretation of the tax during an interview in Der Spiegel in September 2001. Paul Spahn spoke this way in 1996 a tax variable geometry, low rate for ordinary transactions, surtax on profits from transactions in the short term comparable to speculative attacks. According to the author, a fair balance between a high Tobin tax, could stabilize the foreign exchange market but that would impede its operation, and a tax of a low level, which would have little impact on the foreign exchange market but not enough to fight against its excessive volatility. [...]
[...] The Tobin Tax: relevance or utopian? In 1972, when the world was plagued by currency turmoil, the economist James Tobin proposed, at a conference at Princeton University, taxing currency transactions in order to allow governments to regain their independence in macroeconomic policy. From a low rate close to and levied on buying and selling of currencies, its main objective is to reduce fluctuations in exchange rates. The tax is pursuing the objectives of increasing the autonomy of monetary policy, the fight against the volatility of the exchange market, obtaining revenue to debt relief for developing countries and an obstacle to speculative attacks on fixed exchange rate systems. [...]
[...] Several problems remain to face the technicality of some derivatives. Financial engineering undoubtedly invent new products that are able to circumvent this regulation Terms of employment and revenue management which remain to be found This is to determine whether the resources generated by the tax should be managed at national level by the fiscal authorities or supranational IMF or the Bank for International Settlements (BIS). If the supranational level seems more relevant, three institutions still remain in competition: the IMF, the BIS and the World Bank. [...]
[...] The expected benefits of the tax 1. Increased autonomy of monetary policy In a situation of perfect capital mobility while the interest differential is arbitrated and refocused on the exchange rate. Schematically, the domestic interest rate fell below the world interest rate; investors sold domestic currency to buy foreign currency and invested their capital abroad, the exchange rate depreciated. More capital mobility, the greater the investor can sell the domestic currency and the depreciation of the currency resulting from a decrease in interest rates will be high. [...]
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