PBOC vice-governor Yi Gang suggests Tobin tax on foreign exchange
A top mainland financial regulator has suggested the country could introduce a tax on foreign exchange transactions among other steps to guard against speculative capital flows amid further economic liberalisation.
Yi Gang , head of the State Administration of Foreign Exchange (SAFE), wrote in an article for the Communist Party theoretical journal Qiushi that China should "study in depth" the so-called "Tobin tax" on financial transactions.
Nobel laureate James Tobin proposed the levy in 1972 as a means of reducing speculation in global markets.
Yi, in his article carried on the journal's website, also called for studying measures including fees on foreign exchange trading and curbing short-term speculative fund flows.
The measures were mentioned in the context of "orderly pushing forward capital market opening, improving and perfecting the foreign debt management system and accelerating the advance of renminbi capital account convertibility", Yi wrote.
"Persistently guarding against cross-border liquidity flow shocks is the key to good foreign exchange management," he went on.
In addition to heading SAFE, which regulates China's foreign exchange system, Yi is also a vice-governor of the People's Bank of China (PBOC), the central bank.
It was the first time a mainland regulator had commented publicly on the Tobin tax.
During the global financial crisis in 2009, then-British prime minister Gordon Brown and German Chancellor Angela Merkel expressed support for a transaction tax but it failed to gain sufficient backing within the Group of 20 major economies, including from the United States.
Supporters see such a levy as a way of providing buffers against economic downturns and also curbing excessively speculative transactions.
Chen Bo, a professor at the Shanghai University of Finance and Economics, told China Daily that a Tobin tax would work as a market-oriented way to cut down foreign exchange speculation in lieu of the country's present system in which the PBOC gives approval on a case-to-case basis.
"The tax will make certain otherwise profitable transactions unprofitable and thus reduce speculation," Chen said, according to the paper.
Chen predicted that the tax was likely to be introduced along with a quota system to manage the foreign exchange market as temporary measures ahead of the country making its capital account fully convertible, adding that the tax would probably be imposed nationwide as opposed to selectively in certain areas.