China's foreign-exchange chief backs Tobin tax to rein in yuan speculation
Suggestion aired by Yi Gang part of Beijing's push to stabilise the currency and have it included in the IMF's special drawing rights
China's top foreign-exchange regulator has suggested imposing a so-called Tobin tax to curb excessive speculation in the yuan, the latest sign that Beijing wants to stabilise the currency.
Yi Gang, a deputy governor of the central bank and chief of the State Administration of Foreign Exchange, said in an article published by China Finance magazine that Beijing would strengthen regulation of currency trades and money flows amid its efforts have the yuan included in special drawing rights (SDR), the International Monetary Fund's basket of reserve currencies.
Yi suggested punitive measures such as a Tobin tax, a small levy on currency transactions to deter currency speculators, to stem hot money flows.
The magazine is an official publication by the People's Bank of China, and Yi's article is seen as a clear message to the global financial markets that Beijing still has a positive stand on the yuan's exchange rate despite speculation that a further depreciation could be on the way after a one-off 2 per cent devaluation in August.
The Tobin tax was first proposed by Nobel Laureate economist James Tobin in 1972 to promote currency stability after then-US president Richard Nixon decided to abandon the US dollar's peg to gold.
"The central bank wants to reassure global financial investors that the stability of the yuan is still its top priority," Bank of Communications analyst Liu Xuezhi said. "Technically, a weaker yuan could boost China's exports but it could largely slow down the process of the yuan's inclusion in the SDR and lead to huge capital outflows."