Financial markets are getting tough criticism from here, there and everywhere. The new Dodd Frank rulings, Tobin Tax and now a new proposal by the UN’s development agency to tax foreign exchange as it can help reduce global poverty.
The UN development agency called on Wednesday for a tax on foreign exchange trading deals, which are worth hundreds of billions of dollars per day, to help the world’s poor deal with the effects of climate change.
“A currency transaction tax has been identified as the most viable of all the sources of innovative financing,” UNDP administrator Helen Clarke said as she presented the 21st Human Development Report in Copenhagen.
“The infrastructure to support such a tax is already in place and a tiny levy will generate very substantial resources for development … just a tiny 0.005 percent levied … would yield some $40 billion annually,” she noted.
The report itself said the revenue potential of such a tax was massive and that “even a unilateral currency transaction tax limited to the euro could mobilise $4.2 to $9.3 billion in additional financing.”
France, which holds the presidency for the G20 this year, has been pushing for a tax on financial transactions to fund development projects. It is expected to make the same pitch when heads of state of the group of 20 nations gather in Cannes later this week.
The original suggestion for such a tax came from US Nobel prize winning economist James Tobin, who in the 1970s proposed a small levy on foreign currency transactions to reduce rampant speculation in the markets.
In the 1990s, the idea was resurrected by the anti-globalisation group ATTAC, which suggested it could be used to raise funds to combat poverty and finance development.
Referring to the current difficult economic position, Danish Prime Minister Helle Thorning-Schmidt said the “crisis has not made things easier but the developed world must live up to our commitments”.
“To end world poverty and confront growing economic inequality we need a more inclusive and more robust growth patterns and we must allow more people to contribute and benefit from growth,” she added.
The UNDP noted that the most disadvantaged people continue to suffer the most from environmental degradation.
“The rate of progress we have seen in the past 40 years cannot be maintained unless we get these equity and sustainability issues and challenges tackled,” Clarke said.
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“The impact in the worst case scenario is that countries which are already low on the human development index will see widening inequalities and very little progress if the challenges are not tackled,” she added.
They are not only vulnerable to the impact of the environment but also confronted with threats including air pollution, water pollution and sanitation.
To measure these serious health, education and living standards deficiencies, the UNDP has taken environmental deprivation into account for the first time in this year’s human development index.
Among the main considerations are access to drinking water, clean sanitation and cooking fuel.
“The figures are very shocking,” said Jeni Klugman, a lead author of the report.
In developing countries, at least six out of 10 people suffer on one count and four out of 10 suffer from at least two.
In addition, half of the malnutrition cases in the world arise from environmental factors, the UNDP said.
Overall, this year’s annual human development rankings showed progress made in the quality of life. However, when adjusted against inequalities among the population, there was an overall drop of 23 percent in the quality of living this year.
“The biggest drops were recorded in education, followed by revenues and health,” said Klugman, underlining that all the regions of the world posted a fall in the adjusted indicator.
Norway, Australia, the Netherlands led this year’s overall index, while the Democratic Republic of Congo, Niger and Burundi came in at the bottom.
However, when adjusted for inequalities, some countries fell off their top rankings. The United States, for instance, was the fourth best in the index, but only ranked 23rd when adjusted for inequalities.
Forex trading is a global phenomena however and as mentioned in the report has a turnover of around $450 trillion per annum. The tax will only affect trades completed in the interbank and futures market as all other OTC transactions will be hard to police, unless ovcourse the UN sends their special envoys to each broker!