The foreign exchange market is the largest market in the world, with an estimated $1.9 trillion currency traded per day (2004). This means that in less than one year, currency worth 10 times the global GDP is traded. Of this massive amount, international trade in goods and services, which requires foreign exchange, accounts for only a small percentage ($9 trillion per year) of the total trading. Meanwhile exchange rate speculation accounts for at least 80 percent of the global currency market. These speculative movements, which can take place rapidly and unpredictably, threaten to empty central banks' currency reserves and trigger financial crises such as those in Mexico (1994), East Asia (1997-98), Russia (1998), Brazil (1999), Turkey (2000) and Argentina (2001). These crises have had far-reaching socio-economic consequences, throwing millions of people into poverty and unemployment.
James Tobin, David Felix, Rodney Schmidt, Paul Bernd Spahn and others have examined the possibility of levying a charge on international monetary transactions as a means to reduce exchange rate volatility and promote international economic stability. In addition, the revenue generating potential of a tax is tremendous. A tax rate ranging from 0.005 to 0.25 percent would generate between $15 and $300 billion per year, of which a substantial amount could be allocated to promote international peace and development. A UN study has estimated that about $150 billion per year is needed to meet the Millennium Development Goals, including halving the proportion of people living in extreme poverty and hunger by 2015, ensuring primary schooling for all children, and reversing the spread of HIV/AIDS, malaria and other major diseases.
Legislation
Seeking to Levy a Tax on Foreign Currency Exchange Operations, Banknotes and Coins (July 15, 2003)
In July 2004, Belgium was the second country after France to adopt legislation on a Currency Transaction Tax (CTT). While the Belgian law, just as the French one, depends on the participation of other European Union (EU) states, it was ground-breaking in that it demonstrated that it is practically and technically feasible to introduce a CTT. The tax provides for a double taxation system which seeks to stop currency speculation during high market volatility as well as raise revenue for a EU development fund. (Chamber of the Representatives of Belgium)
French Legislation on the Currency Transaction Tax (November 19, 2001)
In November 2001, the French National Assembly adopted a tax of 0.1% on financial transactions. This measure aims to control the volatility of capital flows and to avoid speculative activity in the financial market. Such a tax could raise as much as 50 billion euros per day. Although the tax will not come into force until other EU member states adopt the policy, the French tax act represents an important step towards a "fairer" market.
Featured Proposals
The Tobin Tax and Exchange Rate Stability (June 1996)
Paul Bernd Spahn, a German economist, discusses the effects of a currency exchange tax. He favors a two-tiered tax, the major part of which would be triggered only during times of high exchange rate fluctuation. Although written in 1996, his proposal still carries a certain weight with campaigners for global taxes. (World Bank Finance & Development)
A Proposal for Monetary Reform (July/October 1978)
One of James Tobin's original proposals for a currency exchange tax! Since then, of course, the debate has evolved somewhat; furthermore, Tobin's paper has to be seen against its historical background. Nevertheless, there is a reason why we call it a "Tobin tax" and this paper shows it clearly. (Eastern Economic Journal)
Proposals and Reports
CTT for FfD" - Currency Transaction Tax for Financing Development (September 24, 2008)
This statement calls upon the delegates at the Doha Conference on Financing for Development to adopt a global currency transaction tax that would raise additional funding for development. The United Nations should administer the tax and use the revenue to achieve the UN Millennium Goals. (Cttforffd)
Taking the Next Step: Implementing A Currency Transaction Development Levy (December 2006)
A "minimal" tax on currency transactions would allow countries to generate the funds necessary to meet the Millennium Development Goals. This Stamp Out Poverty article proposes a 0.005% development levy on all foreign exchange transactions, which would then provide funding for clean water, health resources, and the UN Central Emergency Response Fund. This proposal, however, as opposed to many other currency transaction tax proposals, does not aim to curb harmful currency speculation.
The Currency Transaction Tax: Rate and Revenue Estimates (October 2007)
In this paper, economist Rodney Schmidt proposes a Currency Transaction Tax (CTT) rate of 0.005 percent. According to Schmidt, this rate "is high enough to raise lots of money but low enough to avoid changing fundamental market behavior." The paper does not deal with whether the tax would still be high enough to discourage harmful currency speculation - one of the original elements of the CTT. But the tax would raise at least $33 billion a year. The United Nations Development Programme estimates that $40 billion per year, for ten years, would eradicate the worst forms of poverty. (North-South Institute)
A Sterling Solution (November 25, 2005)
This report shows clearly how the UK government could "easily" implement a currency transaction tax unilaterally and in a cost-effective way. Focused on the technical aspects, the author explains how a tax as low as 0.005% can raise US$3.11 billion a year for international aid. Although a major fundraising opportunity, it is less clear if such a low tax can also promote global financial stability. (Stamp Out of Poverty)
CTT: Ready for Implementation – Executive Summary (November 2005)
A currency transaction tax (CTT) in the European Union could raise up to 46 billion Euros annually for global development while also protecting EU markets from currency crises. WEED proposes a two-tier tax system, including a lower, continuous tax on all currencies traded within the EU and a higher tax applied only in times of currency crisis. The study shows that the EU could introduce a CTT without major technical or legal problems.
More Taxes! (April 2005)
This book from ATTAC Finland discusses global taxes as a way of curbing tax evasion both at national and international levels. It focuses especially on the currency transaction tax (CTT, or Tobin tax), addressing its possible applications in global financial regulation and as a source of revenue for development.
New Resources for Development (March 2005)
Five years after the Millennium Declaration, it is clear that most countries will not be able to achieve the Millennium Development Goals without an aggressive new approach. This report from the International Cooperation for Development and Solidarity (CIDSE) recommends that developed countries promote a more equal distribution of global wealth through the cancellation of unsustainable debt, the dedication of a minimum of 0.7% GDP in aid, and the implementation of global taxes such as a currency transactions tax and an aviation fuel tax.
Debating the Tobin Tax (November 2003)
New Rules for Global Finance presents a collection of papers debating the Tobin tax. Papers include arguments for and against the tax, discussions on the enforceability of the tax, and the relationship between market size and market stability.
Understanding the Silence Amid Turmoil: The Tobin Tax and East Asia (January 16, 2003)
While the East Asian financial crisis spurred support for a Tobin tax in many "Western" states, the general attitude towards the tax in East Asia itself is only lukewarm. Young-Chul Kim of Keimyung University discusses the reasons behind this and seeks new methods to increase interest in the tax.
Why the Tobin Tax Can Be Stabilizing (December 2002)
This paper argues that a Tobin type tax can have a stabilizing effect on financial markets, not because it reduces the excessive volume of currency transactions, but because it can slow down the speed of market traders' reactions to price changes. (Levy Economics Institute)
Costing the Casino: The Real Impact of Currency Speculation in the 1990s (March 2002)
Helen Hayward demonstrates that the globalization of financial markets has led to a succession of financial and economic crises, with devestating consequences for the developing world. A two-tier Tobin tax could act to calm market volatility and prevent further crises.
Spahn: A Tax on Foreign Exchange Transactions (February 2002)
Paul Bernd Spahn's important policy paper on the Tobin Tax, published with the support of the German Development Ministry. The paper concludes that the tax is technically feasible, that it can be established on a European basis and that it can produce significant revenue for development.
Currency Transaction Tax - a Concept with a Future (April 1, 2001)
Recognizing that the main obstacle to the Tobin tax is lack of political will, this Weed paper concludes that just as in the campaign for ecological taxes, "the struggle is hard and long, but successful in the end."
The Feasibility of a Unilateral Speculation Tax in the United States (July 26, 2000)
The domestic financial markets would not suffer greatly if the US were to introduce taxation on the trading of stocks and bonds, Dean Baker says. With reference to laws against money laundering, he concludes that a domestic speculation tax (at least in the case of the US) can indeed work. (CEPR)
Destabilizing Speculation (June 2000)
Arguing his case within the framework of neoclassical economics, Thomas Palley shows why a currency exchange tax would be an act of good public policy. He takes on the most common criticisms and disarms them one by one. (AFL-CIO Policy Paper)
Articles
2009
EU divided on German "Tobin" tax proposal (September 17, 2009)
European Union leaders do not support Germany's proposal for a global financial transaction tax. British Prime Minister Gordon Brown (whose London financial center would be most affected) fears that some countries will not apply the law properly and hence the tax would lose its global character. The European Commission president says that the tax could work as long as it is applied universally. (AFP)
Germany's SPD woos left with tax on financial deals (September 11, 2009)
The chancellor candidate for the Social Democrats, Frank-Walter Steinmeier, is pushing for a global financial transaction tax just before the elections on the September 27. In a SPD paper co written by the German Finance Minister and Steinmeier, the party suggests at least "a national stock market trading tax to fight the effects of excessive manager bonuses." The SPD is planning to bring up the issue at the G-20 Summit in Pittsburgh. (Reuters)
G20 Urged to Tax financial deals to fight poverty and AIDS (August 27, 2009)
Health organizations and development campaigners will exert pressure on the G20 finance ministers in order to introduce a currency transaction levy. The UK Financial Services Authority chairman and a UN special adviser also give their support to a Tobin-style tax aiming to tackle poverty and AIDS. (The Guardian)
2006
Fair Exchange Could Help Poor Countries Grow and Put a Damper on Bubble Money (February 27, 2006)
With rising support for airline ticket taxes and for the British proposal of an international finance facility (IFF), the Guardian draws attention to the most effective way to finance development in poor countries, a currency transaction tax (CTT). A very low tax on currency exchanges would not only raise tens of millions of dollars to fight extreme poverty and diseases, but also discourage financial speculation. Without a CTT, speculation will continue to harm economies and people by creating economic bubbles and financial crisis.
UN Unveils Plan to Release Untapped Wealth of...$7 Trillion (And Solve the World's Problems at a Stroke) (January 30, 2006)
By attacking global challenges such as malnutrition, global warming and financial crises before they actually occur, political leaders could unlock US$ 7 trillion. A UN Development Programme (UNDP) proposal encourages governments to internationally implement six specific financial tools to raise resources for development, including investments in vaccines, trade of pollution permits, and currency transaction taxes. (Independent)
2005
Stamp out Poverty: Campaigning for a Stamp Duty on Currency Transactions (April 7, 2005)
The Tobin Tax Network has launched a campaign pushing the UK government to introduce a small tax on sterling currency transactions. Such a tax could raise £3 billion per year for international development.
Chirac's Taxing Idea (January 28, 2005)
In his speech to the World Economic Forum 2005, French President Jacques Chirac suggested global taxes to raise funds for the fight against "silent tsunamis" of famine, disease and violence. One of Chirac's proposals involves a tax on cross-border financial transactions, but of such a low percentage that it would have negligible impact on global capital speculation. (Guardian)
2004
Belgium Clears Path to Developing World Prosperity (July 5, 2004)
Belgium passed legislation to enact a currency transaction tax. Revenues will fund the UN Millennium Pledge to halve world poverty by 2015. The policy will combine a tax on all currency trading, with an "anti-speculative mechanism" that would deter investment-caused currency crashes. (Guardian)
France, Brazil Relaunch "Lula Fund" to Tax Arms Sales and Fight Poverty (January 30, 2004)
The French and Brazilian presidents have relaunched the idea of global taxes to overcome the global shortage of developmental aid funding. These global taxes would include an imposition on international financial transactions and arms sales. A special fund, dubbed the "Lula Fund," will use the taxes collected to fight hunger and poverty. (Agence France Presse)
2003
Tobin Tax Network Position Paper on the International Finance Facility (Fall 2003)
In 2002, the UK Treasury proposed to establish an International Finance Facility (IFF) to secure financing for the Millennium Development Goals. Once set up, the IFF will help raising $ 50 billion yearly. While welcoming the proposal, the Tobin Tax Network
argues that the possible exclusion of the poorest countries from IFF funding makes a compelling case for the Tobin Tax as an alternative complementary source of substantial financing for development
argues that the possible exclusion of the poorest countries from IFF funding makes a compelling case for the Tobin Tax as an alternative complementary source of substantial financing for development
Non-Aligned Nations Must Lead Financial Reform – India (February 23, 2003)
Indian Prime Minister Atal Bihari Vajpayee has called for a Tobin tax to protect the world's developing economies. Vajpayee pointed out that a tax on currency transactions would be easier to implement than the measures to monitor terrorist financial channels introduced in two Security Council resolutions after 9/11. (Inter Press Service)
