China should take measures, such as the so-called Tobin tax, to deter currency speculators, according to central bank Deputy Governor Yi Gang.
The steps could include a punitive levy on foreign-exchange trades and the imposition of “handling” fees to counter short-term capital flows aiming for arbitrage, Yi wrote in an article in China Finance magazine, a People’s Bank of China publication. He is revisiting the Tobin tax idea after mentioning it more than a year ago.
His comments suggest the PBOC take greater control of the currency at a time when China is looking to satisfy the International Monetary Fund’s condition that the yuan be more freely usable before it can be admitted into the agency’s Special Drawing Rights basket. While the nation is opening up the interbank bond and currency markets to foreign central banks, it has introduced measures against bets on yuan declines after a surprise devaluation in August triggered the biggest monthly slide since 1994.
Nobel Laureate economist James Tobin first proposed the levy in 1972 after U.S. President Richard Nixon’s decision to abandon the dollar’s peg with gold pushed up global volatility. The tax has in the past been rejected by economies from Europe to South Korea because of the risk investors will simply take their business elsewhere.
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Alfonso Esparza
trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
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