Tobin Tax

Posted in Finance, Accounting and Economics Terms, Total Reads: 543

Definition: Tobin Tax

Tobin Tax states that spot conversions from one currency to another currency must be taxed. As per Tobin, there were huge fluctuations between world currencies and financial markets. Thus he came up with the proposal of taxing the transactions between international currencies. 

The example of implementation of Tobin tax is currently happening in Euro Zone where Eleven EU countries had agreed to endorse the tax to raise billions of Euros from the financial services industry also to deter speculation primarily in the derivatives and spot currency market. It is going to the first time that the EU would introduce a new tax without the support of all members with primarily United Kingdom objected to the plan of action.

The major problem is that the people opposing of the tax indicates that it would also eliminate any profit potential for currency or Forex markets. While the proponents state that the tax will help in stabilizing the home currency against other global currency also help in curbing fluctuations in the interest rates because many countries' central banks do not have the necessary amount of cash in reserve that they would be able to balance a currency selloff. 

James Tobin, an economist from USA, suggested the concept of this tax in 1972.


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