A Tax on Foreign-Exchange Transactions
Report of a Consultation held by CIDSE
in collaboration with the University of Antwerp (UFSIA)
22 October 1999, Antwerp, Belgium
Slightly revised Easter 2001
Executive summary
|
While there were no agreed conclusions from the consultation and considerable differences of view remained on the overall desirability of the Currency Transactions Tax (CTT), which formed the main focus of the discussion, strong cases were made for the three following assertions:
|
Starting-point
Among his opening remarks at the meeting, Mgr Martin, Secretary of the Pontifical Council on Justice and Peace, stressed the need for a culture of international solidarity. Catholic Social Teaching, he said, holds two principles: the dignity of each individual, and the truth that God created humankind as a family.
First then, each human being, created in the image of God, has, by virtue of that creation as a person, natural rights to be respected and claims to be supported. Second, since all are rightly considered members of the one family, all have responsibilities for the well-being of each.
Other speakers took up this theme and considered it in the light of globalization. It was recognized that these responsibilities can not be adequately met without appropriate political institutions, and the form that these institutions take must necessarily be adapted as technological and social conditions change. The developments that have occurred over the past two centuries, including those broadly described as globalization, have made it technically possible as never before for a common responsibility for all to be effectively fulfilled. At the same time they have rendered the states---often misleadingly described as "sovereign"---on which people previously relied for protection and for the provision of public goods, ever more clearly inadequate on their own as fully independent entities to achieve the common good. Hence there is a need for a politically organized world society, above all to preserve peace but also for the sake of other common concerns and responsibilities such as social justice, material security and environmental conservation. This does not imply the supplanting of the governments of states but rather enabling their proper purposes to be more completely fulfilled.
In the absence of an enforceable legal order internationally, consensual means have to be sought for enabling world society to act in certain respects "autonomously", as an international entity. Such well-structured cooperation is needed in order that the human family may fulfil its responsibilities for the protection and support of all its members and the preservation of the habitat that they pass on to later generations.
CIDSE, given the objectives of its member-organizations and its Catholic view of natural obligations and responsibilities, recognizes a role for itself, together with other Church and non-church organizations, in pursuing the search for world institutions conducive to the establishment of justice and peace.
It is on this ground that CIDSE co-sponsored the Antwerp consultation on taxing excessive currency speculation. The discussion inevitably concentrated on the question of a currency-transactions tax (CTT) or foreign-exchange tax, often known as a Tobin tax, and its possible variants.
The interest of the subject is twofold: the need for revenue available for global public purposes, including programmes to meet the basic needs of the world’s poor; and the need for institutions to counteract the harmful byproducts of economic globalization, in particular the instability generated by speculative international capital movements and the associated loss of policy-autonomy on the part of national governments. The CTT has been advocated for both purposes, and the meeting was held to examine these claims in view of the most recent thought upon them and recent international events.
Three important developments over the last few years,...
Since an authoritative collection of papers on the possibility and value of a CTT had been put together in 1995-96 [Ul Haq et al., 1996], three important developments relevant to the subject had occurred, two in the realm of investigation and ideas, and one in world events.
...two in the realm of discoveries and ideas...
The intellectual developments were a paper [Schmidt, 1999; later developed in ASchmidt, 2001] arguing that the implementation of a CTT had, for institutional reasons, become much easier than had been assumed in 1995-96; and another [Spahn, 1996] purporting to show a way by which the device could be made far more clearly and unambiguously relevant to limiting the harm from disruptive capital movements.
...and one in world events.
The development in world events was the series of currency crises that occurred over the 1990s. Even if we exclude the events of 1992-3 in the European Union, these took place in countries which represented about an eighth of the world’s population and across which there had been no common picture of macroeconomic indiscipline or mismanagement: Mexico, 1994-5; Thailand, Indonesia, South Korea, and Malaysia, 1997; Russia, 1998; and Brazil, 1999. (In fact Mexico at the time of its crisis had just engaged in a programme of deep macroeconomic and structural reforms of the kind favoured by the IMF. In East Asia before the time of the crises, "budget surpluses, or small deficits were the norm in the troubled countries" [McLeod & Garnaut, 1998, p.10]. The foreign debts of Thailand and Korea were relatively low. Neither Thailand’s not Malaysia’s foreign debt appears to have been rising, and Indonesia’s may have been falling [ibid, pp.10,11]. ) Other economies were seriously affected by these events. Some well-informed observers also believed there was evidence of a deliberate attempt on the part of certain financial institutions to generate a similar crisis in Hong Kong in August-September 1998 [Krugman, 1999, pp.125-9]. World Bank estimates suggested that, in four Southeast Asian countries alone, there was an overall reduction of about 10% in economic activity and a doubling to 90 million of the numbers of people in poverty [Financial Times, 28/8/1998, p.4].
The international recommendations imposed on these economies during and after these crises were controversial, and criticized even by voices from the World Bank. Many argued that this advice increased the difficulties and suffering of some of those nations that followed it [Krugman, 1999, pp.111-7,146-51; Wyplosz, 1999, pp.169-75]. The explanation that the crises had been due entirely to specially bad practices in the banks and finance houses of the countries that suffered was not convincing because these weaknesses had not been clearly more common among those countries affected than among those not affected [Krugman, 1999, pp.98-101]. In fact, this interpretation seemed to be an example of "wisdom after the event" in that the crises had not been foreseen by international organizations, rating agencies, or foreign investors [Wyplosz, 1999, p.167]. Even if the explanation were right, there would be no easy way in which the faults of the banks could be quickly enough repaired everywhere to guarantee against a recurrence of similar crises. More reliable and readily-available ways of protecting countries against currency crises were needed. And, with excellent timing, Spahn’s argument suggested that a CTT suitably adapted could be a reliable way of meeting that need.
***
So there seemed to be a strong case for a further serious consideration of the CTT.