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Are Grains of Sand in the Wheels of International Finance Sufficient to Do the Job When Boulders Are Often Required?

Authors
Disciplines
  • Economics
  • Mathematics

Abstract

This paper criticizes the effectiveness of a Tobin tax in acting as a deterrent to short-run round trip speculation on exchange rate movements. It is demonstrated that, given the usual magnitude of a proposed Tobin tax, the deterrent to short-term speculation will be negligible and in all likelihood smaller than the deterrent to real trade flows and arbitrage activities. Finally, an alternative proposal for preventing currency speculation while creating incentives for global full employment, based on John Maynard Keynes's 1940s writings, is proposed. Copyright 1997 by Royal Economic Society.

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