“TOBIN TAX” ON

FINANCIAL
TRANSACTIONS
PRESENTED BY:
PALLAVI
VIDHI
ZAHID
ANKUR
INTRODUCTION
 WHAT IS TOBIN TAX?
Tobin Taxes are excise taxes on cross-border
currency transactions. They can be enacted by
national legislatures, followed by multilateral
cooperation for effective enforcement. The
revenue should go to global priorities: basic
environmental and human needs. Such taxes will
help tame currency market volatility and restore
national economic sovereignty.
HISTORY

 The name Tobin Tax and the original concept

derives from James Tobin, a Ph.D. Nobel-
laureate economist at Yale University.
 In 1978, James Tobin, a Nobel Prize-winning
economist, first proposed the idea of a tax on
foreign exchange transactions that would be
applied uniformly by all major countries. A tiny
amount (less than 0.5%) would be levied on all
foreign currency exchange transactions to deter
speculation on currency fluctuations. While the
rate would be low enough not to have a
significant effect on longer term investment
where yield is higher, it would cut into the yields
of speculators moving massive amounts of
currency around the globe as they seek to profit
from minute differentials in currency fluctuations.
FEATURES
 The Tobin Tax is a proposed transaction tax on currency
speculation. The concept comes from James Tobin, a Nobel
laureate economist at Yale University. Here is how it would
work: Currency speculators trade at the rate of over one
trillion dollars each day. Speculative transactions would be
taxed at a tiny percent of volume (.1%-.5%), once per
transaction. Non-speculative transactions would be exempt,
about 10-15% of the daily volume. The tax would discourage
overnight or short-term currency trades, the most volatile,
while leaving longer-term investments barely effected.
Dangerous currency volatility would thus be reduced, and
national macroeconomic autonomy restored. Parts of the
revenue would go to international trust funds, other parts to
national budgets. Both parts could be used to fund worthy
projects.
Tobin tax projects around the world

  Tobin tax require multilateral

implementation. Since one country acting
alone would find it very difficult to implement
this tax.
 It has been proposed that having the 
United Nations manage a Tobin tax would
solve this problem and would give the U.N. a
large source of funding independent from
donations by participating states.
Europe
In Europe the Tobin tax idea was the subject of much
discussion in the summer of 2001. On June 15, 2004,
the Commission of Finance and Budget in the Belgian
 Federal Parliament approved a bill implementing
the Spahn tax.
Canada
In Canada, it was revived largely through the efforts of
Canadian activists in the 1990s, and in March 1999
the Canadian House of Commons passed a resolution
directing the government to "enact a tax on financial
transactions in concert with the international
community."
Latin America

In Latin America, the Tobin tax has been

supported by the president of Brazil, Luiz Inácio
Lula da Silva, and the president of Venezuela, 
Hugo Chávez; President Chávez announcing his
own interest in a Tobin tax in January 2003
Why is support growing for such a tax?
Interest has grown rapidly in such a mechanism, as the pace of
foreign exchange transactions and financial deregulation has
accelerated over the past decade. Today approximately US$1
trillion worth of currency is traded every day in unregulated
financial markets. Only 5% of this activity is related to trade
and other real economic transactions. The other 95% is
simply speculative activity as traders bet on exchange rate
fluctuations and international interest rate differentials. This
kind of financial speculation plays havoc with national
budgets, economic planning and allocation of resources.
Governments and citizens are becoming increasingly
frustrated by the whimsical and often irrational activities in
global financial markets that have such an influence over
national economies and are seeking some means to curb
damaging, and unproductive, speculative activity.
 The Tobin Tax: An international tax on foreign currency transfers

One of the key issues on the agenda of a series of

global meetings from the UN Conference on
Social Development in Copehangen through the
G-7 Summit in Halifax, to the UN World
Conference on Women in Beijing, will be the idea
of an international tax on currency exchange.
This paper outlines some of the key aspects of
the most common version of this tax known as
the "Tobin tax".
This sounds good, but is it politically
possible?
 There are two key political issues involved
with putting such a tax in place.
1. It would be necessary to forge agreement
amongst the major countries to implement a
uniform tax, and
2. there would have to be agreement on the
collection and distribution of the tax revenue.
Perhaps more significant is the fact that many governments
face large deficits and strong anti-tax populism among the
electorate and are looking for new sources of tax revenue
that are not politically suicidal. Such a minimal tax will not
hit "Main Street", but rather "Bay Street/Wall Street
speculators".
It is possible that some members of the financial community
might support this tax. The pace and the volumes traded in
the markets has added a level of risk to doing business, for
as much as great profits can result from speculation so can
great losses as in the Barings Bank fiasco. Some
experienced business people may see the value of the
limited risk of more stable markets, suggesting if not the
Tobin proposal, other strategies to limit the volatility of the
current global money system.
PRINCIPLES OF TOBIN TAX
 To alleviate human suffering like expensive food and basic items,
widening gap between rich and poor, the strain on the global
environment, and high rates of unemployment occurring due to
currency devaluation.
 To help government central banks to adequately protect the
currency of their own nations as foreign currency exchange has
grown recently to over a trillion dollars .
 To shrink the volume of daily currency trading from its present
trillion dollar daily level and restore each nation’s ability to control
its own currency, as well as generate revenue.
 Need to be adopted by major currency nations , to be effective,
rather than universal adoption.
 Since the revenue could be quite large, over one hundred billion
by some estimates so basic human needs and basic
environmental needs must be met first, such as those addressing
environmentally sustainable development, climate change, and
hunger.
 Administering agencies should cooperate with local civil society
to provide actual services for basic needs, such as disaster aid
and food distribution, small-scale agriculture and reforestation,
health clinics and disease prevention, local water systems and
pollution control mechanisms with the help of revenue
generated.
 Proposals range from .1% to .5% per transaction. Longer-term
investments occur less often, so would not be adversely
affected by this small tax, and the overall remaining volume
would be enough to create sizable revenue.
 Should be Political will for successful adoption, and grassroots
support to educate decision makers regarding this opportunity.
 By placing a tax on currency trades, it makes currency
trading slightly less attractive. By marginally increasing the
cost of currency trading there should be a reduction in
speculative trading, leading to greater exchange rate
stability in floating exchange rate systems.
 A tax set at 0.01% on just Sterling trades would raise £2bn
a year. A tax on global currency trades could raise
significant sums.
 After damage created by speculative investments such as
derivatives and futures trading. There has been greater
support for intervention to reduce speculative buying in
financial markets.
DISADVANTAGES
 Difficult to tax all transactions, it may encourage
investors to find ways around the tax.
 Decline in currency flows may harm functioning of
markets and lead to poor liquidity in currency markets.
 Tax may be insufficient to prevent speculative flows
and currency movements which are driven by
economic fundamentals.
 A tax may discourage 'hedging' which is a way of
insuring against currency movements rather than
discouraging speculation.
CONCLUSION
THANK YOU!!!