Introducing a tax on foreign exchange transactions has no positive effect on the currency fluctuations which are associated with flexible exchange rates.

This is the opinion held by a majority of the 279 financial analysts recently questioned as part of a survey carried out by the Mannheim Centre for European Economic Research (ZEW). The recent survey was conducted as part of the monthly ZEW Financial Market Survey. When questioned about the effectiveness of the Tobin tax, which was first suggested by the economist James Tobin in the seventies, 60 per cent of the analysts claimed they expect the tax to have only a minor effect on the volatility of exchange rates. In addition, a third of the experts consider it unlikely that the tax will have any dampening effect on currency fluctuations.

The tax rate could, however, play an important role in reducing fluctuations. As regards to the argument advanced by the supporters of the Tobin tax, financial market experts do not believe that the tax can prevent future currency crises. Two thirds of the experts predict that the Tobin tax is not an effective instrument to achieve this aim. In case of a currency crisis, the chances of success when betting against the currency are far greater than the losses suffered due to low tax rates.

Furthermore, critics have argued that there are significant difficulties associated with the application of the Tobin tax. According to the surveyed experts, the tax must be implemented on an international level. Otherwise foreign exchange trading might transfer to other countries. Other participants in the survey consider it sufficient to introduce the Tobin tax on a European level, as foreign currencies are, within certain periods, almost exclusively traded in Europe. The results of the ZEW expert survey are clear-cut: 92 per cent of the respondents have serious doubts concerning the applicability of the Tobin tax, irrespective of whether the tax is to be implemented on an international or on a European level.


Dr Felix Hüfner, E-Mail:

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