Tobin Tax:
U.S. President Donald Trump’s administration is considering imposing a Tobin Tax on capital flows, a move that could disrupt global financial markets.
- The Tobin Tax is a tax on foreign exchange transactions aimed at discouraging short-term speculative trading.
- It is a small levy (0.1%-0.5%) on currency conversions to reduce volatility in financial markets.
- Proposed in 1972 by James Tobin, a Nobel Prize-winning economist, in response to currency market fluctuations after the collapse of the Bretton Woods system.
- Aimed at “throwing sand in the wheels” of currency speculation to stabilize exchange rates.
- Applied on currency transactions to deter short-term speculation.
- Low tax rate to prevent market disruption.
- Revenue generated can be used for public welfare or development projects
