Tobin tax


The Daily Mail City team explains Tobin tax - a tax levied on foreign currency transactions which is devised to cushion exchange rate fluctuations.

Named after?

The late James Tobin, an American economist who taught at Yale and Harvard and picked up a Nobel Prize along the way.

And the tax?

He came up with the idea of a small-ish tax to be levied on foreign currency transactions. In his own words: 'The tax on foreign exchange transactions was devised to cushion exchange rate fluctuations.

'The idea is very simple: at each exchange of a currency into another a small tax would be levied - let's say, 0.1 per cent of the volume of the transaction.

'This dissuades speculators as many investors invest their money in foreign exchange on a very short-term basis.'

In other words...

It would throw a bit of grit into the cogs and slow down the vast currency flows that whistle around the world.

Some argue trade would suffer, but only one or two percent of foreign exchange deals finance trade. The rest is accounted for by speculative movements.

In the news?

It certainly is. Lord Turner, chairman of the Financial Services Authority, has floated the idea of a tax on financial transactions.

A popular idea?

Bankers are incandescent. The Treasury is pretty sniffy, too. They say the City would suffer.

Tobin tax

Search within