What is Tobin Tax and it’s Issues?

The primary aim of Tobin tax, unlike most taxes, is not to raise revenue, but to discourage short-term speculation, particularly in the foreign exchange markets. In the currency markets, enormous amounts of money are traded daily, as traders attempt to make profits from small discrepancies between the relative values of currencies.

The primary aim of Tobin tax, unlike most taxes, is not to raise revenue, but to discourage short-term speculation, particularly in the foreign exchange markets.

In the currency markets, enormous amounts of money are traded daily, as traders attempt to make profits from small discrepancies between the relative values of currencies.

What Problem Is the Tobin Tax Trying To Solve?

With no fixed exchange rate mechanism between currencies it is up to a large number of economic entities to determine the relative values of currencies in the marketplace. In itself this is no bad thing, but short-term currency speculation where large amounts of money are shifted between currencies with different interest rates make it difficult for countries to implement monetary policy.

The Credit Crunch and the Tobin Tax

Although foreign exchange speculation was not the cause of the credit crunch, it hampers countries ability to implement economic policy.

The Tobin Tax and the G20 Summit

Sarkozy's proposal for the G20 summit extended the remit to any financial transaction - it is unlikely that he will be able to carry this proposal in that form, but the credit crunch has made some unthinkable solutions thinkable. Perhaps the Tobin Tax will be one of them, an idea whose time has come.