Tobin Tax
Candlefocus EditorThe tax, proposed by Nobel award-winning economist James Tobin in 1972, is based on a simple concept of taxing short-term capital movements to discourage speculation on foreign exchange markets. It is designed to be applied on a global level and is imposed on transactions occurring within a certain time period, usually one month.
The Tobin Tax is an alternative to the more traditional methods of regulating financial markets, such as central banks and monetary policies. The goal of the tax is to create a more stable, predictable exchange rate by discouraging short-term speculators from engaging in excessive trading. These short-term traders move market prices around for their own gain, leaving the average investor at a disadvantage.
Under the Tobin Tax system, the government or other regulatory body collects fee-based income by taxing each individual currency transaction on the market. This offers a degree of stability to markets by making the cost of currency speculation more expensive, thus discouraging frequent-trading. The proceeds of the tax can then be used to boost economic growth and reduce poverty.
Creating a Tobin Tax system on a global scale is difficult since governments are reluctant to implement a system that will significantly reduce the profits of their own financial industry. It is also difficult to determine the exact rate of taxation that should be imposed. Despite these considerations, the tax has been implemented on a smaller and more localized scale, in nations such as France, Somalia and China.
In conclusion, the Tobin Tax is an innovative way of reducing the instability of financial markets. The tax is designed to discourage short-term currency speculation, reduce the cost of trading and generate revenue for countries that experience a high level of short-term currency exchange. Although the implementation of the tax on a global scale is difficult, it is a viable alternative to the more traditional methods of market regulation.