Campaign for a Tobin Tax Gains Momentum

By Romilly Greenhill

19th March 2002

Wednesday 13th March was Tobin Tax Day. To celebrate the event, the UK based Tobin Tax Network organised a seminar aimed at making the Tobin Tax a reality. The seminar, held in London, was addressed by several prominent UK figures including Larry Elliott, Economics Editor of the Guardian; Baroness Shirley Williams; and Andrew Simms of the New Economics Foundation.

The aim of the seminar was to create further consensus around the need for a 'Tobin Tax' - a small tax on foreign currency transactions, originally proposed by Nobel Prize winning economist James Tobin in the early 1970s. Tobin proposed that the tax, which should only be a very small percentage of transactions, would put 'sand in the wheels' of international finance, and thus help to preserve stability in the global financial system. 

The need for such a tax has never been more evident. At present, $1.5 trillion dollars change hands every day through currency trading. A staggering 97% of all currency trades are for speculative purposes, rather than to fund the exchange of 'real' goods and services. The result of this speculative mania is that currency speculators get rich quick - while developing countries such as Argentina, Thailand, Mexico and Indonesia are blown off course by their collective financial muscle. 

The Tobin Tax would have a further big advantage. Even the most conservative estimates show that the tax would raise at least $50bn each year for development aid. This figure is almost exactly the amount that Jubilee Research estimate will be needed to meet the Millennium Development Goals in the HIPC countries, provided there is full debt cancellation. Implementing a Tobin Tax could, quite literally, save millions of lives.

Tobin's innovative proposal has been around for almost three decades, but has been largely dismissed by policy makers and many economists as an impractical dream. But ironically, the September 11th terrorist attacks in the US may have changed all that. As Baroness Shirley Williams has argued, many of the systems that have been put in place to monitor terrorist financing could equally be used to monitor currency transactions. 

But even without such reforms, economist Rodney Schmidt from Canada's North South Institute has argued that the tax should not be difficult to implement. He argues that each currency trade, even if agreed on a bilateral basis between diffuse traders, must be settled through the computer systems hosted in Central Banks. Each Central Bank, therefore, could easily impose the tax on all trades which pass through their systems - all trades, in other words, which involve their own currency. 

The main constraints to the Tobin Tax are, therefore, political - in particular the desire of Finance Ministers and Central Banks not to upset rich and politically powerful speculators. But the signs are that this is changing. The French and Belgian Parliaments have already voted in favour of the tax, while Gordon Brown, the UK Chancellor, has said that he is 'open to the idea.' And around the world, civil society groups such as Attac, War on Want, and the New Economics Foundation, are increasing the political pressure.

In the immortal words of Victor Hugo, 'an invasion of armies can be resisted; but not an idea whose time has come.' 

For more information on the Tobin Tax, see 'The Robin Hood Tax', published by the New Economics Foundation and War on Want. See http://www.neweconomics.org/uploadstore/pubs/3400.pdf