Tobin Tax Initiative List of Principles: Multilateral Cooperation to Tax Currency Speculatiors

(Adopted June 1998 by the San Francisco Regional Advisory Committee to the Tobin Tax Initiative)

Multilateral Cooperation to Tax Currency Speculators

  1. The financial crisis in Asia and elsewhere is adding to human suffering which must be alleviated. When currency is devalued, the purchasing power of citizens plummets, food and other basic items become too expensive, the environment is less protected, and jobs are lost. Further, this crisis exacerbates existing problems, such as the widening gap between rich and poor, the strain on the global environment, and high rates of unemployment.
  2. One of the causes of the financial crisis is the large volume of currency speculation that now occurs on a global basis. The foreign currency exchange has grown recently to over a trillion dollars daily, much larger than all the stock exchanges of the world. This market is so large and volatile that government central banks can no longer adequately protect the currency of their own nations.
  3. The existing institutions that regulate national and international monetary systems have inadequate and sometimes even destructive policies to deal with the crisis. For example, the austerity programs of the International Monetary Fund increase the level of suffering for those with the least "safety nets," while doing little to prevent destructive volatility. Reform of these institutions is an essential part of any effective solution to the crisis.
  4. Reforms are needed in many aspects, but should include mechanisms to reduce the volume of destabilizing capital flows, through a transaction tax on currency speculation. Commonly but not necessarily called the "Tobin Tax," after the Nobel economist who originated the concept, this tax would deter short-term or overnight trades, and thus shrink the volume of daily currency trading from its present trillion dollar daily level. Such a shrinkage would restore each nation's ability to control its own currency, as well as generate revenue.
  5. To effectively reduce volume, the tax percentage must be large enough to make overnight speculation unprofitable. 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.
  6. Adoption by the major currency nations of the Tobin Tax mechanism would accomplish the volume-shrinking goal, so the adoption need not be universal to be effective.
  7. Collection and enforcement of the Tobin Tax are considered to be economically and institutionally feasible, and concerns regarding tax avoidance could be dealt with through adoption of regulatory mechanisms.
  8. Since the revenue could be quite large, over one hundred billion by some estimates, baseline criteria for allocation to meet basic needs should be established. Basic human needs and basic environmental needs must be met first, through existing international agreements such as those addressing environmentally sustainable development, climate change, and hunger.
  9. The international portion of the revenue should be set aside in a series of earmarked trust funds for basic needs that are cooperatively administered in an open and democratic fashion. 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.
  10. Such administration should occur within the framework of producing local jobs, while ensuring adequate environmental safeguards, and protection of the rights of workers and other citizens.
  11. Political will is the key to successful adoption, and grassroots support is essential to educate decisionmakers regarding this opportunity.
(signed by SF-RAC)

Tobin Tax Initiative
CEED/IIRP, PO Box 4167
Arcata, CA 95518-4167
phone: (707) 822-8347, fax: (707) 822-4457

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