February 11, 2002
Capital market regulation and the idea of a levy on speculative foreign exchange transactions, a "Tobin tax", may gain favour among politicians after a decade of currency crises, Sweden's central bank said on Monday.
Riksbank Deputy Governor Villy Bergstrom listed the currency crises in Europe, including Sweden, in 1992-93, Mexico 1994-95, South East Asia in 1997, Russia in 1998, Brazil in 1999, Turkey in 2001 and Argentina this year and said: "All of these crises have had at least one thing in common: the countries concerned had a fixed exchange rate."
Another common denominator was that many citizens, who had had nothing to do with the errors leading up to the crises, were made destitute because their small incomes and savings declined in value, Bergstrom said in the text of a prepared speech. "Large parts of the growing middle class in the worst hit countries in South East Asia were wiped out," he said.
International bodies such as the Bank for International Settlements (BIS), the International Monetary Fund (IMF) and the World Bank should continue their endeavours to establish rules "to protect innocent people from ruination and to put the risk for bad investments on those making the investments", he said.
Bergstrom said the purpose of such reforms would be that those lending money would be forced to a greater extent than is currently the case to bear the costs of solving a crisis. "The free movement of capital makes great demands on countries' economic policy. If it turns out that the crises increase in number and become more profound, the demands for a return to regulation will strengthen," he said, noting such demands were being voiced in various international forums. "History shows that periods of liberalisation have been followed by periods of regulation," Bergstrom said.
"It is possible that the regulatory frameworks on which the international organisations are currently working will stabilise the foreign exchange markets, but it is also possible that some form of 'Tobin tax' will win political support," he said.
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