The foreign exchange market is the largest market in the world, with an estimated $4 trillion of foreign exchange traded per day (2011). This means that in less than one year, currency worth 25 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
2013
A New European Tax on Financial Transactions Is Set To Go Global (February 26, 2013)
Attempts at better regulation of the financial sector in the US and EU involve laws applying beyond state boundaries to prevent risky financial activity that has historically contributed to the financial crisis. This year, eleven EU countries agreed to a Financial Transaction Tax (FTT) on investments, potentially bringing an additional $45 billion in revenue, which some say could go towards offsetting debt or even social and environmental programs. Furthermore, through extraterritorial enforcement, FTTs tax financial investments from trading partners like the US and dissuades tax evasion by European companies. The US Foreign Account Tax Compliance Act similarly limits the use of tax havens by requiring foreign banks to report all US holdings. While some countries are already looking at adopting this regulation, the FTT faces opposition from the UK and US. Although stronger financial regulation is needed, the global nature of the issue highlights the complexity of implementing reforms. (Washington Post)
2012
Europe Dithering on Tobin Tax (July 9, 2012)
The European Union (EU) has failed to reach unanimous approval of Tobin Tax, a tax on financial transactions which could reduce speculation and increase state revenues. While a study shows that Tobin Tax is feasible even without global application, the leading German opposition Social Democratic Party (SPD) is hoping for the government of Germany and France to work together to convince other governments still opposing the tax. Ten European governments have already pledged to levy the tax starting in 2014. Nevertheless, “the EU’s inability to pass a common tax on speculation shows the enormous influence the international finance sector continues to enjoy.” (Inter-Press Service)
US Financial Professionals Call for Transaction Tax (June 21, 2012)
Professionals from the financial sector have sent an open letter to the US Congress to urge for the creation of a financial transaction tax (FTT). The FTT would have a significant impact on high-frequency trades, in which speculators rapidly trade stocks and options using computerized algorithms. Many European Union countries already support a blanket transaction tax, and the cash strapped US government may also consider the proposal as a way to raise revenue. (Inter-Press Service)
2011
'Tobin Tax" Could Raise $850bn (...and Market Volatility) (June 14, 2011)
A new study by the Institute of Development Studies has found that contrary to popular belief, a Tobin tax might actually increase market volatility. The study has also concluded that a currency transaction tax would be unlikely to destabilize markets if it was designed appropriately. The authors of the study have noted that the estimated revenues outweigh this risk. A 0.005% tax to markets could generate $850 billion in revenue, which is equivalent to seven times the current estimated aid in 2008 from wealthy countries to poor countries. (Financial News)
Robin Hood: a Tax Whose Time Has Come (April 18, 2011)
Over 1000 economists recently signed a letter to leaders of the G20 calling for a currency transaction tax that would curb speculative trading and produce revenue to finance development in poor countries. A Robin Hood tax, in conjunction with other sensible policies and controls, could help stabilize the global financial system. A continuous cycle of financial crises in the era of deregulated markets should signal to leaders that a currency tax and other reforms are essential. (The Guardian)
Sarkozy Lays out Plans for 'Moral' Reforms of Global Money Markets (January 25, 2011)
French President Nicholas Sarkozy is using his position as President of the G20 to enact a sweeping reform agenda that includes the imposition of "moral" rules on global financial and commodity markets. Sarkozy has promised to push for taxes on all "speculative" financial transactions. He also will call on G20 members to adopt a new global "social framework" that will improve working conditions and introduce minimum wage standards. Sarkozy insists that his regulations do not go against the "free" market model, but rather work to save the system from itself. (The Independent)
2010
60 States to Lobby UN for Currency Transaction Tax (September 1, 2010)
An extra $35 billion a year for development aid? That is the estimated amount that currency transaction taxes would bring to the aid table if the planned proposition goes through. However, the US and the UK are still opposed and the biggest currency markets are within their jurisdictions. Another major question remains: who will be in charge of the billions produced and on what will it be spent? (Reuters)
Linking Climate Justice to Tax Justice (March 14, 2010)
James Henry and Brent Blackwelder propose two "modest" and "complementary" transnational taxes that would raise revenues for climate adjustment assistance to poor countries. The first would tax only wholesale foreign exchange transactions and the other a tax on private financial assets under management of commercial banks, considered "anonymous wealth." The authors account for the administrative and political feasibility of their proposed taxes, and argue that on a moral ground, such taxes reflect a polluter pays principle and as well focus on trillions of dollars that sit in off-shore banks almost entirely untaxed. (CASSE)
The Many Lives of the Tobin Tax (January 19, 2010)
Discussions on the Tobin Tax have re-emerged in light of recent climate change talks and the global financial crisis. Ahead of the Copenhagen summit, France - one of the earliest adopters of a tax on financial speculation - proposed the Tobin tax as a potentially useful instrument to fund climate change mitigation and adaptation policies in developing nations. While the US remains opposed, growing consensus is noticeable across Europe. (Tierramerica)
Is It Time for Financial Institutions to Give Back? (December 1, 2009)
It has been more than a year since the global financial crisis began in earnest. Author William Pfaff calls on bailed-out financial institutions to offer recompense in the form of a small tax on international transactions. The US, Democratic Congressman John Larson has proposed a 0.25 percent tax on over-the-counter derivative transactions. Other Congress members have suggested the same rate for ordinary stock transactions. France, Britain and Germany now favor a transaction tax. While US Treasury Secretary Geithner is skeptical, Larry Summers, director of the National Economic Council, has written in favor. (Truthdig)
Russia Joins Fight against Speculators (November 20, 2009)
Russia aims to prevent speculative currency traders from bidding up the ruble exchange rate. Moscow plans to accomplish this by applying a tax on cross-border currency transactions. Brazil and Indonesia also support this idea, as they consider speculative money inflows a threat to their exporters. Brazil has already put into effect a tax on Brazilian stocks traded in US markets. Alexei Ulyukayev, Chairman of the Russian Central Bank, favors the new tax and he thinks enactment of the measure is likely. (The Wall Street Journal)
Brown Calls for Global Transaction Tax (November 7, 2009)
UK Prime Minister Gordon Brown is the latest supporter of a global financial transaction tax, already promoted by France and Germany. Canada, the United States and Russia have opposed this idea. With the UK, the opposition Conservative Party is against Brown's proposal saying he "is chasing headlines." (The Wall Street Journal)
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)
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)
