The governments of the world's major currencies would levy a tax on certain international transactions so as to discourage speculative and herd behaviour in international capital flows.
The Tobin Tax is a tax on currency speculation, once per transaction. The idea and name comes from James Tobin, a Nobel laureate economist at Yale University. The currency market is now over one trillion dollars daily, and the proposed tiny percentage tax (suggestions range from.1% to.5%) would be on speculative transactions only. The purpose is to discourage volatile short-term trading and its destabilizing effect on country currencies, restoring national macroeconomic controls over currency fluctuations. Billions in revenue would be generated, as much as $300 billion to $1 trillion yearly. Part of the revenue would go to an international fund, another part to national budgets.
If applied at the intermediate, netting stage of foreign exchange transactions, rather than at the initiation stage where the deals are made or at the final settlement stage when payments are completed, a properly designed Tobin Tax is feasible and can also be unilaterally imposed by any country on all foreign exchange transactions worldwide involving its own currency. If implemented, economic experts have estimated that the tax proposal could raise as much as $300 billion a year, based on 1992 estimates of daily currency trading of about $1.3 trillion.
Under the influence of the Tobin tax, minor currencies might become more volatile and vulnerable to speculative attacks.