Global Policy Forum

Resolution to establish an international tax on currency operations (Tobin Tax)

1. National economies, in fact the global economy as a whole, are taken hostage by bursts of feverish currency speculation.

2. According to the enquiry carried out in April 2001 by the Banque des Rí¨glements internationaux (BRI) ("Bank for International Settlements"), the global volume of daily currency operations was estimated at about US$1.2 billion. Of this sum, about $387 billion involved instant transactions, meaning monetary conversions at the current rate to be carried out "immediately" (payment is generally made within two days). The brevity of most of the transactions reveals the speculative nature of the majority of this turnover. BRI statistics indicate that about 80% of all currency operations are "out and back" (purchase followed by resale) in seven days or under, and more than 40% in two days or under. So, we can assume that 80-90% of all currency operations have no direct link with an ultimate user wanting foreign currency to pay for goods or services. Their aim is, on the contrary, to profit from the small differences in interest rates between different countries or variations in exchange rates.

3. It follows that enormous sums of money, mostly uncontrolled (and untaxed), are moved around the world in search of the highest return in the shortest amount of time. Their disruptive potential is also enormous.

4. The volatility of the exchange rate can completely disrupt collective negotiations, particularly in those sectors which are more exposed to foreign competition, where collectively agreed increases in real salaries and in benefits stay generally in line with inflation and productivity gains. In this way, companies remain competitive and jobs are maintained. Carefully calculated agreements can, however, be disrupted by sudden exchange rate fluctuations in a given country. A sharp increase in the exchange rate makes exports less competitive, and thus brings about job losses, whereas a dramatic drop means that the prices of imported products go up, which means that agreed pay increases have to be reassessed. All in all, exchange rate volatility complicates collective negotiation by undermining the hypotheses on which contractual agreements are based.

5. The great monetary crises, like those that hit Mexico in 1994-95, Asia in 1997, Russia in 1998, and now Argentina, bring about economic and social disruption, and impoverish many in developing countries. This is why these crises tend to spread from the weak economies to the stronger ones, for the simple reason that they are very closely linked to those countries with economic difficulties. The financial crisis can be calmed quite quickly if governments and the central banks rapidly take the necessary measures, restoring speculators' confidence. This means measures such as slowing down the economy (with massive job losses) and cuts in health, education and other public services. But all these measures cause lasting economic and social damage in a country, when the development gains achieved over many years are suddenly swept away in a few weeks.

6. James Tobin, winner of the Nobel Prize, suggested bringing in a modest tax, the same the world over, which would apply each time money was changed: the rate which is most often suggested is 0.1% of the value of each commercial operation. Tobin said that the tax should be applied to instant transactions. By making monetary transactions more costly, a tax of this nature would discourage currency speculation (short term buying and selling of currency), and would at the same time reduce exchange rate volatility. Such a tax would also improve the autonomy of central banks and governments in determining their economic and monetary policy. In this way, in countries suffering from insufficient economic growth, the authorities could, through judicious interest rate reductions, encourage the development of credit thus favouring the creation of secure jobs, the use of new technologies and training for workers. Lastly, the tax would create revenue which could be used for the challenges facing the world, such as the fight against poverty. However, this tax would mainly be intended to discourage speculation and not to produce revenue. A compromise must clearly be found between these two functions: the more effective the tax is in discouraging currency speculation, the less revenue it will generate.

7. The introduction of a Tobin tax has long been a demand of the international. trade union movement. The last UNI World Congress, in September 2001 in Berlin, strongly reaffirmed this. The tax is not the panacea capable of solving all the problems of the international financial system, but rather can be considered as one element in a series of necessary measures for stabilising the currency markets, which must be done in order to arrive at more stable growth and better job security.

8. UNI-Finance asks the international community to ensure global control and management of the market, and especially the financial markets, within the framework of the international financial institutions and organisations. The objective must be to take back control of the financial markets in order to make investing easier and productive in the long term. The application of an international tax on currency operations would constitute an important means of achieving that aim.

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