In 1978, economist James Tobin proposed a tax on cross-border currency transactions. This tax would occur every time a stock, bond or derivative was purchased or sold.

This concept may now be implemented in the EU. Its aim is to slow down the number of speculative dealings and provide a vital source of revenue. A vast volume of transactions is seen to contribute to volatile currency markets and economic instability.

Economic and ethical arguments are used to support the tax. The European Commission acknowledged potential detrimental financial impacts whilst using these arguments to justify continued support. For advocates, FTT is an essential reaction to the increase in foreign exchange trading.

Opponents have reacted quickly with a number of reports being published. Current criticism focuses on the negative socio-economic impact of financial trading shifting away from the EU. In London, thousands of people work in foreign exchange markets and, according to Allister Heath, approximately 45% of currency trading is in the ‘swaps market’. Ernst and Young argued this week that FTT would damage the GDP of EU states and AIMA stated there would be significant harm to EU cross-border trade.

International financial instability calls for a new international structure but is Tobin Tax the answer?

By Beth Horne
Researcher, Tax In House & In Practice
T: +44 (0) 2070 092 0137
E: bhorne@morganmckinley.co.uk

Allister Heath, cross-border currency transactions, financial transactions tax, James Tobin, robin hood, Tax, Tobin Tax