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Paul: Is there a chance to get that paper?, because i dont
have access to that journal.
Federico
----- Original Message -----
Sent: Wednesday, September 26, 2001 9:42
PM
Subject: Re: Bundesbank Rejects Tobin
Tax
At 06:45 PM 9/26/01 -0400, you wrote:
Tobin's dangerous remedy
A tax on
speculative flows on capital would hinder trade and do nothing
to avert
financial crises, says Ernst Welteke
FT Published: September 26 2001
19:56 | Last Updated: September 26
2001
20:00
Those interested in seeing why the
Tobin tax will not even stop short-term round trip speculations in foreign
exchange should look at my article "Will Grains of Sand In the Wheels of
International Finance Do The Job when Boulders Are Needed?" in THE ECONOMIC
JOURNAL, 1997. BTW Professor Tobin admitted that my criticism of
the Tobin Tax is correct.
Paul
It is tempting to opt for an easy
way out if the solution to obvious
problems is too complex or too
protracted. The Tobin tax is once again
being extolled as this kind of
cure-all. Proposed 30 years ago, it was
debated briefly before falling by
the wayside. Now, as then, its
advocates promise a cure without
side-effects; a fairer world.
In concrete terms, it is supposed to be
about stemming speculative
capital flows, these purportedly being the
cause of financial and
monetary crises; a Tobin tax on speculators would
suppress exchange rate
fluctuations and monetary crises could be avoided.
Some even see it as a
way of turning the tide of
globalisation.
James Tobin, who came up with the idea, had a narrower
focus: taxing
currency trade so as to "throw a spanner in the works" of
the financial
markets. The funds raised were to be credited to the World
Bank. That
was Professor Tobin's original idea - its extension, advocated
by the
anti-globalisation camp in particular, gives him little pleasure
(FT,
September 11).
Speculators often target what they expect to
be small price swings. But
not all short-term transactions are harmful.
Currency trading, which
tries to exploit price differentials, has an
important role to play in
terms of the functional viability of the
markets. This arbitrage ensures
uniform prices. A tax on currency trades
would jeopardise its role and
undermine market stability.
What is
more, the real problem, the risk of financial and monetary
crises, would
still exist. The hallmarks of crises are severe losses of
confidence,
highly volatile share prices and nosedives on the equity
markets. A Tobin
tax would do nothing to damp these violent swings.
The Tobin tax
falls short of the target but its side-effects are even
worse. In
currency trading, it is not possible to distinguish between
the supposed
evil of speculation and the benefits of external trade. A
tax on currency
trading would affect all its forms and make
international trading more
expensive. That would be a disadvantage in
terms of the worldwide
division of labour. The less developed countries
would be the ones to
suffer.
Moreover, reduced trading on the currency markets means
decreasing
liquidity and, consequently, potentially greater
volatility. There are
also practical reasons for rejecting the
Tobin tax. It functions
properly only if it is effectively implemented
worldwide. Difficulties
are likely to be encountered not only with regard
to countries'
political will, but also in terms of determining the
instrument's ideal
technical form.
If we want to avoid crises, we
must tackle them at their source: poor
economic and financial policy,
banking difficulties or unsound
developments in the real economy.
Speculative capital flows are merely
the symptoms of suspected
imbalances.
The foundations for stable and well-functioning financial
markets have
to be laid in various different areas. To begin with, a
central banker
needs to put his own house in order. Of course, price
stability is the
most important criterion for well-functioning markets. A
credible,
stability-orientated monetary policy enhances the
meaningfulness of
prices and builds confidence. We also need sound fiscal
policy and an
accountable economic policy, both of which help to
stabilise the
markets.
Dependable institutions, and especially
dependable financial systems,
also make a contribution to stability.
Banking supervision and financial
market supervision have to rise to this
challenge in all countries. The
more open a country's capital market, the
higher are the standards set
for its national financial supervisory
systems. This makes it even more
essential for the national authorities
to work closely with
international bodies.
Enhanced international
co-operation helps to stabilise the markets and
systems. The criteria for
a viable world economy are open markets for
goods, services and direct
investment, open capital markets in keeping
with the state of the
national financial systems and political
co-operation, which underpins
the workings of the markets without
attempting to replace them. In
addition, bail-outs by international
organisations may not be used as a
means of increasing private
investors' risk propensity. The
International Monetary Fund and the
World Bank should focus less on
distributing money and more on stable
systems.
Furthermore,
up-to-date, informative data are vital for market
participants. Changes
in expected earnings or risks have to be reflected
in prices
immediately. If they are spotted too late, prices
swing
abruptly, as feared. And that is why market participants need
more
transparency. More widespread use of standards and best
practices could
help to increase transparency worldwide. In particular,
compliance with
the 12 standards identified by the Financial Stability
Forum should be
encouraged.
The path towards stabilising the
financial markets is not an easy one.
But unlike "easy" routes such as
the Tobin tax, it is one worth
pursuing.
The writer is president
of the Bundesbank
Paul Davidson
Editor, JOURNAL OF POST KEYNESIAN ECONOMICS
Economics Department - University of Tennessee
523 SMC
Knoxville, Tennessee 37996-0550
work phone: (865) 974-4221
fax: (865) 974-4601/ (865) 974-1686
home phone and fax (865) 692-0802
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