Tobin taxes are back in circulation again. The financial crisis has highlighted the fundamental problems of financial stability as well as the costs associated with bailouts of the financial sector.
Interestingly the family of tobin taxes, better known as financial transaction taxes ot security transaction taxes are good tools which can help tackle both of these problems. Their potential and role in helping provide solutions to the challenges confronting us are discussed briefly in this policy note here. This note which was written a while back will be followed by a Re-Define Policy Paper out next week.
Exponentially expanded financial markets
It is widely known that turnover in financial markets (the total value of financial instruments traded every year) has grown exponentially. This has been the case for almost all financial markets both on-exchange such as stock markets and off-exchange such as OTC derivate markets.
Currency market turnover for example rose from about $4 trillion in the 70s to $40 trillion in the 80s to more than $500 trillion now. Turnover in equity markets registered a seven fold increase between 1993 and 2005 to about $51 trillion and the wealth held in the global bond market is more than $60 trillion now with turnover substantially higher. The notional value of OTC credit default swaps, just a single kind of derivate, rose to more than $60 trillion from almost nothing a decade ago.