The currency transaction tax: a bold idea for financing development.

Global problems require bold solutions and the Currency Transaction Tax (CTT) is one such idea, says a new briefing published by the Canadian-based North-South Institute . CTT is a small levy on foreign exchange transactions and that will be used to finance development projects. The authors of the briefing claim the tax would be easy to operate and difficult to evade since all foreign exchange transactions are completed in a few large centralised settlement structures. They estimated that a CTT of 0.005 per cent on each transaction in major currencies would yield approximately US$ 33 billion without disrupting foreign currency markets. The money would be allocated for development and administered multilaterally.

Critics of the Tobin Tax, a similar idea [that was originally intended to cushion exchange rate fluctuations], say this tax will reduce foreign currency transactions and create inefficiencies in the trading markets. However the Tobin Tax would have been deliberately set to a higher level to affect market behaviour. The CTT is intended to raise money without disrupting the market.

Read the full 4 page briefing paper here

Source: ELDIS – Finance Policy

For more on CTT see the CTT campaign web site and Currency Transaction Tax web site of the Halifax Initiative.