Taxation governance : could the Tobin tax assist in democratising globalisation?

Transaction taxes are an innocuous way to throw some sand in the wheels of super-efficient financial markets and create room for differences in domestic interest rates, thus enabling national monetary policies to respond to domestic macroeconomic needs (Tobin 1996: 493). James Tobin made these remarks 24 years after first proposing a currency transactions tax, which has since been called a 'Tobin tax'. A Tobin tax- a small flat tax to be imposed on the value of all foreign currency transactions - has the objective of reducing the volume of speculative currency trading currently occurring in the largely unregulated world currency markets. Daily trading in world currency markets increased from US$0.2 trillion to over US$1.8 tiillion in the twelve years from 1986 to 1998. However, the total trade in goods and services for all countries for an entire year is only US$4.3 trillion (DeFazio and Wellstone 2000). The trade in goods and services in 1998, therefore, only made up less than I per cent of the total volume of world currency trades. Or, looked at the other way, 99 per cent of all trading in world currency markets is trading for purposes other than trade in goods and services. This could include spot currency speculation, currency arbitrage, currency hedging, forward exchange contracts and trading in other currency instruments.