Some thoughts on the implementation of an international currency transaction tax

The idea of an international Currency Transaction Tax (CTT) was first proposed by Nobel Laureate James Tobin in the 1970s. The idea was to levy a very low tax on all international currency exchanges. Since these funds are transferred electronically, the tax is in essence an international e-tax. Such a tax would create a barrier to frequent exchanges of funds, but would be levied at such a low level that it would not create a disincentive to long term transfers from one currency toanother. Professor Tobin saw this as a way to "throw sand in the wheels" of unrestrainedinternational movements of capital, and so bring more stability to the worldwide economy. The funds collected would not necessarily belong to any one country's taxing authorities, but could potentially contribute to a global fund. Over the last three decades, the tax has been variously seen asan unworkable ideal, a global intrusion on financial freedoms, a means to address global problems,a barrier to international trade and development aid, an artificial imperfection for the free market or ameans of restricting capital flows. It has gained support and condemnation in equal measurefrom all ends of the political spectrum,but increasingly is seen as a serious part of the solutionto the current economic instability. This paper argues that the time has come to seriously consider theintroduction of a CTT internationally. It sets out the development of the CTT since Tobin's first proposals, outlining variations on the tax and some alternatives being considered. It discusses the main arguments for and against the tax, and discusses practical implementation issues and the case for the tax in the current economic environment.