Tax Currency Transactions: a Way to Finance Development?

A tiny stamp duty of 0.005% on sterling currency transactions by banks could raise £3 billion annually for international development.

Additional funding is much needed for investment in international development, and could help fund the UK government’s commitment to double aid spending in support of the Millennium Development Goals.

Join the audience for this JustShare debate at lunchtime Tuesday 6 September, at Cheapside in the heart of the City of London. Jim O’Neill, Head of Global Economic Research at Goldman Sachs will speak against the proposition. Speaking for the affirmative will be Sony Kapoor, international finance and development expert, and Senior Advisor to Christian Aid UK and the Stamp Out Poverty Campaign. This debate is part of the ongoing JustShare Tuesday Lunchtime Debates series. See http://www.stmarylebow.co.uk/debate.htm

The stamp duty proposed by Stamp Out Poverty would apply to all trades in sterling, wherever in the world they occur. It can be implemented unilaterally by the UK government and collected at settlement using existing systems such as CLS. Tax enforcement is feasible, even where the trades occur outside the UK jurisdiction, because such systems are linked to the Bank of England (and where they are not, such linkage can be made mandatory through enhanced regulatory requirements, or the central bank can use it’s functional power to ensure this happens). Hence there would be no incentive for institutions to re-locate away from the UK, as doing so would not enable the duty to be avoided.

Research by academics and market experts for the Stamp Out Poverty campaign shows that the low rate proposed would not disrupt the market. The incidence would be spread across a large number of banks and their corporate customers, and the revenue raised would be an insignificant burden on any individual trading party. Compliance costs are also likely to be low and marginal, as most of the market is electronic and much of the necessary transactional reporting information is already being captured. Avoiding the duty using derivatives or other methods is highly infeasible, and is likely to cost more than paying it.

Currency trading amounts to $475,000 billion per year, and is the largest market in the world. While many other transactions have stamp duties, currency trading is exempt. Each day 30,000 children die needlessly, and there is an urgent need for innovative financing mechanism to fund new investment in poverty eradication, and to achieve the Millennium Development Goals. Taxing the currency trade to finance development is an idea whose time has come.

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