To bin or not To bin?

No, that isn’t a slovenly way of expressing the classic line from Hamlet in the past tense. Nor is it a new strap line for the recycling industry (in Denmark perhaps?).


Actually I should have written it “Tobin or not Tobin” for what we are referring to is the idea of a Tobin tax.


You will recall that the Tobin tax is a proposal popularised by the American economist James Tobin (hence the name) in the 1970s. It was suggested as a practical way to ‘throw sand in the wheels’ so to speak to slow down speculation on share exchanges and, in particular, speculators disturbing and at times potentially dangerous tendency to de-stabilise the ‘proper’ functioning of markets. Although quite what constitutes a ‘proper’ functioning financial market in the real world, as opposed to the world of theoretical economics courses is another debate.


The idea of a Tobin tax has been enjoying something of a resurgence in recent years; given a fillip following the economic disruption, chaos and near collapse occasioned across the world in 2008 -09. Looking through the yahboo of political catcalling, this existential economic crisis arose due to the lack of an effective regulatory framework in which to manage, control – and, yes, limit – the activities of financial institutions. Many commentators have since remarked that the Big Bang reforms of the financial services sector in the UK in the early 1980s went too far – but all subsequent administrations share in the blame for not effectively reigning things back in.


But that is all it has been so far – an idea. It is, of course, officially anathema to many in the financial services sector and diehard free-marketeers (they do still exist, apparently) who regard it as unhelpful meddling in the ‘proper’ functioning of the market (there we go again….).


It has, however, been gaining some real traction. The idea has been discussed within the EU and it now looks like it will be tried – in the People’s Republic of China, if this morning’s market rumour mill is to be believed.


An unnamed source from within the Chinese administration has said that this is being actively considered by the Chinese authorities. Initially on currency transactions only. Despite the predictable shrill cries of derision and the sky is falling from some quarters at the idea of this tax, what is going to be key is, as with any tax, how big it ist. The unnamed Chinese source has indicated that it may be zero to begin with to get market participants and regulators used to the idea. Previously, advocates in the west of the Tobin tax have talked about very small tenths of a percent. Appplied to the volume of trades on European markets that would generate an awful lot of revenue – and, so the argument goes, be of such marginal additional cost that there would be no significant reduction in economic vigour and activity (shades of the Laffer curve idea?).


I am sorry to harp on liked a cracked record – but we truly are in interesting times. And how apposite that that is referred to as ‘the Chinese curse’! Til’ next time.


For more information, please contact Stephen Gregson on 01772 821021.

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