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Economic Theories – International Economic Relationsinstrument efficient is establishing an appropriate rate of taxation, also given theevolutions of the financial market during the period of time from the settlement of theconcept. The increasing trading volume in derivate and new derivative instruments, andthe application of the Tobin tax in a limited manner to spot transactions will againdetermine a reorientation from traditional spot transactions to derivative instruments.Goodhart (1996) and Bird,Rajan (2000) point out that also futures, swaps and optionsshould also make subject for taxation as they represent alternative ways through whicha speculator cango long or short of a currency without going through the spotmarket. The Eichengreen, Tobin and Wyplosz (1995) paper, perhaps the most citedwork when analyzing the Tobin tax, supports Tobin’s arguments for “putting grains ofsand in the wheels of financial markets”, and for the fact that this type of measure couldpresent itself with welfare implications for those cases when these markets determineshocks on labor and commodity markets. The central aim of the tax is to discouragespeculative short-term attacks and excessive volatility as shocks manifestation, andaccording to these authors it represents the second-best alternative on the foreignexchange market horizon.As main hypothesis for the settlement of the Tobin tax, speculation had to bequalified in terms of influence and positive or negative phenomena. Argumentationsaround the negative or positive effects of a speculative environment range from Keynes(1936), to Milton Friedman (1953) and Dornbusch and Frankel (1987). Keynes (1936)describes the speculative behavior as a “beauty contest”. The goal of the speculators isnot to estimate the intrinsic market value but to beat the market – or how Keynes wouldhave said – to ‘anticipate what average opinion expects the average opinion to be’ andto ‘guess better than the crowd how the crowd will behave’. The equilibrium role ofspeculation has been invoked and also its contribution towards determining afundamental value of the traded titles and towards driving the market down to itswarranted price. Even though, the key element seems to been an accurate estimate ofthe equilibrium price by the speculators, which is not always a straight forward one.The classical logical argumentation falls in the area of a fall whenever the price isabove the equilibrium and vice versa. In case the equilibrium does not exist or cannotbe detected directly by the market participants, it might be rational to assume that theprice will move up further. In fact, this precisely what has caused the recent economicand financial crisis – the speculative bubble, also as a proof of the fact that usually,short-term oriented speculators perform better compared to market participants whobase their buying-selling decisions on fundamental data such as the assumption of aproperly estimated equilibrium price. Thus, beyond anything else, this type ofspeculation seems to be the one causing real destabilization and disequilibrium on theinternational financial market, and this is just the short-term perspective. The long-termassessment may prove speculation as stabilizing on a larger scale of the internationalforeign exchange market. Under these circumstances of speculation, while it does notrequire the market participant to evaluate the fundamental of the exchange rate, theTobin tax should work as automatic detection mechanism for the equilibrium price bydiscouraging short term speculation, and thus, becoming superior to other financialmarket limitation instruments (Menkhoff and Michaelis (1995)).2. THE NEW CRISIS PERSPECTIVEEver since the debut of the actual economic and financial crisis, authoritieshave tried to find the appropriate solutions that could diminish or further away the183
Revista Tinerilor Economişti (The Young Economists Journal)negative effect of this phenomenon. But what if we should first envisage the causes inorder to treat? The actual application of a measure such as the Tobin tax is highlydependent on the identification of the real sources of the disequilibrium out-burst. Theuncontrolled movements of the foreign exchange market have certainly been the causeof the late 2007 bursting bubble. But beyond that, different other previously manifestedcauses may add up. Failures of international financial markets may also be generate bypanic, moral hazard and adverse selection due to asymmetric information (Haberer2003).The financial sector, as the main source of the actual crisis has played animportant role in the development, growth and convergence process in Europe,especially for the central and eastern European EU acceding countries. From this veryperspective, the EU is a rather particular case, both in terms of the regulation of thefinancial market, and also in terms of the evolution of the crisis, its impact, requiredinstruments and future prospects. The main features of the EU crisis, independent of thesource, have been alarming debt levels/shares, and also high deficits in terms of publicbudget. The rather recent liberalization of capital accounts in many European countries,and specifically in the central and Eastern part of the continent, has also been a majorcontributor to the specificity of the crisis and to implications drawn from the financialside. Given the emerging markets, economic theory suggests that capital should flow"downhill", from relatively capital- intensive economies to relatively less capitalintensiveeconomies, given that the marginal return on capital is expected to be larger inthe latter parts of the world. (Gardó and Martin, 2010) During the last couple of yearsthe CESEE countries were good examples of emerging market economies whichimported large amounts of capital in order to finance their growth and convergenceprocess (see Abiad, Leigh and Mody, 2007).The table below provides data describing the foreign exchange turnover in dailyaverages for 2010 – the most recent reporting period, in order to settle a scale for thetransactioning level, by category of instruments. The criterion employed here is aregional one meant to depict the imposing mass for the Tobin tax and estimated incomeresultsTable no. 2. Regional FX turnover by instrument. (in billions of US dollars)Region Spot Outright forwards and Currency Options TotalFX swapsNorth America 491 423 10 42 966Western Europe 916 1,672 29 163 2,780Asia-Pacific 361 743 16 38 1,159Eastern Europe 30 38 0 0 68Latin America 21 20 1 1 42Africa and Middle East 13 25 1 2 41All regions 1,832 2,921 57 246 5,056Adjustment for - crossborderdouble counting342 -681 -14 -39 -1,075Global turnover 1,490 2,240 43 207 3,981Source: *** BIS – TriennialCentral Bank Survey Report on global foreign exchange market activity in2010, 2010, p.18The Western European area accounts for a majority in spot transactions wherethe levy of the financial tax could be located.184
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EditorialHow to become a researcher
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