Selected Essays of James Tobin
Chapter 6: Remarks at a round table on Tobin Tax
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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