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MONTERREY,
Mexico -- The one issue that is raising some
eyebrows at the relatively uncontroversial International
Conference on Financing for Development is the
idea of a currency transaction tax (CTT), also
known as the Tobin tax.
"Our
proposal is to have an objective and factual discussion
about a possible tax [on currency transactions]," said
Heidemarie Wieczorek-Zeul, German Minister for Economic
Cooperation and Development at a panel on the feasibility
of imposing such a tax. "[A new study] provides
food for thought for both those who advocate this
tax and those who criticize it."
The Tobin tax is named after Nobel-prize-winning
economist James Tobin, who passed away last
week. In 1978 Tobin proposed a tax of between
0.1 percent and 0.5 percent on all foreign
exchange transactions to limit excessive exchange
rate volatility while simultaneously earning
revenues that could be used for global causes.
With global foreign exchange transactions of
$1.2 trillion a day, the estimated tax revenue
from this source would be in the area of $150
to $300 billion a year. By contrast, official
development assistance (ODA) in 2000 was $53
billion according to the United Nations.
A new study by Professor Paul B. Spahn, commissioned
by the German Ministry for Development, modifies
the Tobin tax to create a two-tiered approach,
taxing day-to-day transactions separately from
highly speculative transactions. Spahn's proposal
brings down the tax on daily transactions to
0.01 percent, a rate proponents of the tax
say is low enough that it will not deter regular
trading, but perhaps only short-term speculators.
"I think the principle of having two
rates-one for normal everyday trading [the
classic Tobin tax], which satisfies the revenue-raising
aim of the tax, and the other as a surcharge
for particularly volatile periods-is now enshrined
within most of the NGOs [nongovernmental organizations]
and campaigners for this tax," said Steve
Tibbett, Senior Campaigner for War on Want,
an NGO from the UK.
The International
Chamber of Commerce (ICC), which led a business
forum at Monterrey, issued
a statement against the tax saying that "the
high volume of [daily] transactions reflects
genuine needs to cover currency risks and spread
the risks among different participants in the
exchange market. A consequence of a Tobin tax
would be to reduce short-term trading...but
there would be no guarantee that exchange rate
volatility would also diminish."
Some argue
that the tax is not feasible because it would
require global implementation before
it could actually be of any use. The Spahn
study clarifies the possibility of implementing
the tax only on transactions within one "time
zone," or trading center, though Tibbett
said the ultimate and most desirable goal is
to have a global tax system, or "as close
to global as possible." The United States
is unlikely to join the Tobin tax regime if
it is implemented, and US Ambassador John Negroponte
and other members of the US delegation rejected
the idea at a meeting on Monday.
Other leaders,
including Fidel Castro of Cuba and Charles
Josselin, French Minister Delegate
for Cooperation and Francophony, are open to
the idea of a CTT. At a panel on Tuesday Josselin
said, "Calming down the activity in capital
markets is something given a lot of thought
in France. The French parliament is open to
establishing a tax on capital flows when the
time is right, when other partner countries
are ready to make a change."
In the meantime
organizations like War on Want are pushing
hard for the Tobin tax, or
a modified version of it, to be adopted globally. "Ultimately,
currency speculation-short term trading-is
a form of economic pollution," said Tibbett. "It's
corrupting the liquidity of the market. Some
say that the tax will take away liquidity from
the market, but I would argue that it would
take away bad liquidity. One point two trillion
dollars is too much liquidity."
Wieczorek-Zeul
also highlighted the fact that the Tobin
tax would provide an alternative
mechanism for raising international development
financing. "We must go beyond ODA and
look at other forms of financing. We must look
at the systemic issues within financing and
also at innovative ways of financing." The
Tobin tax is not a big issue at the Monterrey
conference, but the heat is on.
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