Talk of a China Tobin Tax Is Good News, Isn’t It?

January 6, 2014

Lots of chatter on the Interwebs about the possibility of a cross-border capital transaction tax in China (aka Tobin Tax – you remember this from first-year Macroecon) after some verbal musings on the topic from Yi Gang, head of the State Administration of Foreign Exchange and vice-gov of the PBOC. The Telegraph, bemoaning the effect of a Tobin Tax on London’s plan to be a RMB trading center, called the idea a potential “cold douche.” Ick.

I have a different take on this. I figure that if Beijing is thinking seriously about a Tobin Tax (the idea has been tossed about by other folks here as well), that means they are worried about unrestricted capital flows.

Why would anyone worry about unregulated capital flows? Maybe senility is catching up with me, but it seems that this wouldn’t be an issue unless Beijing was planning on continuing with deregulation in this area and perhaps even accelerating the trend. And that sort of news would be quite welcome, yes?

Anyone want to back me up on this one?

By the way, this Tobin Tax discussion is yet another bit of evidence firming up my long-held belief that the Asian Financial Crisis of the late 90s was the most significant economic episode of the past 30 years. Without the AFC, we not only wouldn’t be even talking about transaction taxes, but arguably the RMB would have been made freely convertible many years ago.