China Considers Tobin Tax

Bloomberg: China Drafts Rules for Tobin Tax on Currency Transactions
China’s central bank has drafted rules for a tax on foreign-exchange transactions that would help curb currency speculation, according to people with knowledge of the matter.

The initial rate of the so-called Tobin tax may be kept at zero to allow authorities time to refine the rules, said the people, who asked not to be identified as the discussions are private. The tax is not designed to disrupt hedging and other foreign-exchange transactions undertaken by companies, they said.

Imposing a levy on foreign-exchange trading would be the most extreme step yet by policy makers to prevent speculative bets against the Chinese currency, after state-run banks repeatedly intervened to support the yuan and the government intensified a crackdown on capital outflows. A Tobin tax would complicate plans by China to create an international reserve currency and could undermine the leadership’s pledge to increase the role of market forces in the world’s second-largest economy.

... "It is quite surprising to see this news when the yuan is broadly stable."
It will be worth it to pay the tax. Whatever the tax rate, the volatility will be higher.

1 comment:

  1. Curious as to what your comment on the article meant - why will it be worth it to pay the tax?