Re: Tobin tax

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx> (by way of Trond Andresen <trond.andresen@xxxxxxxxxxx>)]

Henry C.K. Liu has exceeded his PKT submission quota. He therefore sent me
an off-list reply which I forward to the list, on my own initiative.

Trond Andresen

************  Henry C.K. Liu:   **************

If Norway adopts an unilateral Tobin tax, or even a regional one, with no
loopholes, its trade will shrink and therefore its economy.
A water tight regime is not that easy.  In a world of multinationals with
worldwide subsidiaries and joint ventures, foreign exchange transactions can be
done off the books, with no direcrt cross border transfer of funds or
instruments.  Parallel laons and swaps are designed to achieve exactly that
purpose.  Schemes will be created to cause drops in cash flow or profit or asset
in foreign parents with subsidiaries in Norway in favor of Norwagean parents
with foreign cubsidiaries, and vice vera, in ways that do not involve cross
border transfers of funds or instruments.  It will be all virtual.
Such schemes will cost the participants and enrich the banks, which is what the
derivative markets have been doing.
So we now are back to step one, except with more complexity.

Do you agree?

Henry C.K. Liu


Trond Andresen wrote:

> This is a belated response to Henry C.K. Liu, who in one message made a
> point (if I have understood him right) that a Tobin tax can easily be
> circumvented, as long as there are some market(s) anywhere in the world that
> trade in securities denominated in the currency under consideration.
>
> But it seems to me that there is a measure that can block such a possibility
> for circumvention. Let me use Norway and trade in our currency, kroner
> (NOK), as an example.
>
> Assume Norway adopts a Tobin type tax, hopefully
> synchronised with a number of other countries.
> At the same time a law is adopted that prohibits Norwegian banks and
> licenced financial institutions to do business with any foreign bank or
> financial institution that trades securities denominated in NOK.
> A foreign bank that is blocked from doing business with
> Norwegian banks, cannot persevere in trading NOK securities.
> This implies that all trading in NOK-denominated securities
> must/will move to institutions within Norway. All trading in NOK
> currency and NOK-denominated securities must abide by rules given by the
> Norwegian Central Bank, regularly report to the NCB,
> under penalty of fines, or even revoking of the
> licence to do financial business - a potent threat.
>
> Any comments?
>
> Trond Andresen