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World Finance and Economic Stability

Selected Essays of James Tobin

James Tobin

Nobel Prize winner James Tobin has made outstanding contributions to modern macroeconomics. In this final collection of his work he examines the economic policies of the United States and its relations with other major economies after 1990. In James Tobin’s view, the welfare of populations depends uniquely on these policies and it is important to be aware of their impact.
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Chapter 6: Remarks at a round table on Tobin Tax

James Tobin


I begin by reviewing the developments in international financial markets and lnstitutions that led me to propose a tax on currency exchange transactions in 1972 and to elaborate the proposal in my 1978 presidential address to the Eastern Economics Association, titled ‘A Proposal for International Monetary Reform’. This has come to be known as the Tobin Tax. It’s no fun having your name attached to a tax these days. At the time the debate on reform focused on alternative exchange rate regimes, fixed versus floating with variations. A transactions tax was a very different approach. Developments in the near 25 years since have confirmed my concerns. Capital movements across exchanges, especially gross transactions, have grown rapidly in size and in importance in determining exchange rates, relative to trade in goods and services. Short-term asset transactions have exploded in volume, absolutely and relative to long-term international investments. Thanks to the current revolution in electronics and the technologies of communication and computation, the cost of making transactions has gone down. Internationally, mobile private funds greatly exceed the reserves that central banks and governments hold or can mobilize, individually or collectively. At the same time, national governmental controls over capital transactions and currency exchanges have gradually been abolished. Even so, even in developed countries, such as France and Italy, some regulations lasted well into the 1980s. But now the tide of deregulation and financial globalization is sweeping the world of LDCs and poor countries, such as Mexico. Originally, the IMF did...

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