Chinese media source Xinhua is reporting that South Korea is proposing to apply a ‘Tobin’ tax to reduce currency speculation and volatility. Created by Nobel prize winner James Tobin, a Tobin tax is defined as taxing currency transactions to limit short term trading of a country’s currency. In South Korea, lawmakers are suggesting to implement a small tax on transactions taking place during normal periods of volatility and increasing the levy to 10-30% during volatile times. While the tax would be expected to limit volatility, it would also lead to increased fees being charged on goods imported and exported from the country. Countries can mitigate the effects of the currency tax by keeping overall tax revenues steady and lowering fees in other areas. According to Xinhua, the tax bill is expected to pass as it is being tagged as a method to stabilize the economy and increase employment.
In the Eurozone, the Tobin tax idea has been bouncing around in the form of a new Financial Transaction Tax (FTT) to stabilize currency changes. However, a similar plan implemented by Hungary was reviewed negatively by the ECB in July.
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