In recent weeks, the loonie peaked over 67 cents (U.S.) for the first time in months. Why did this happen? Was it signs of life in the Japanese economy? Was it the emergence of the euro as a competitor to the U.S. dollar? Whatever the answer, it appears that control of our own currency is out of our hands, and therein lies the problem. Each day, some $2.3 trillion changes hands in currency speculation. Much ofthat ¡shipped again a few days later. No math wizard has to explain that the barest of margins produce tremendous profit for the bankers and brokers on the world's Bay Streets.
What are the results of this unchecked speculation? Remember back to the summer of 1997 with the Asian flu, the beginning of the run on the Canadian dollar and the current bout of Russian troubles. Remember the peso crisis in 1994, the 1992 European exchange problems and the October, 1987, stock market collapse. Sure, a few bankers and brokers gave up their leased Mercedes-Benzes, but the real impact was felt by the poor—in Russia, in Asia and in Canada. In Indonesia, it is forecast that about 30 per cent of the population will live below the poverty line this year, compared with only 10 per cent a year ago. Even George Soros, billionaire and neophilosopher, reckons that the global movement of capital is more like a wrecking ball than a pendulum, earning short-term profits at the expense of long-term investment.
One solution to minimize the worst effects of currency speculation is the so-called Tobin Tax. Named after the Nobel economist James Tobin, the proposal would apply a 0. l-to-0.5-per-cent transaction fee on spec-
ulative currency conversions. Many people believe there would be two benefits. The first would be a reduction in exchange rate volatility. For a currency transaction to be profitable, the change in value must be greater than the proposed fee. Since speculative trades occur on tiny margins, a fee would reduce the incentive to speculate because profits would shrink. A stabilized currency means that the real value in an economy such as Canada’s would become a more important guidepost for capital investment.
The second benefit could be an annual fee revenue in the $150-billion to $300billion range worldwide. That revenue would go towards basic social services for the world's poor. For example, in 1997 the United Nations estimated that the cost of eliminating absolute poverty by providing basic health care, nutrition, primary education, and clean water and sanitation would be $55 billion to $110 billion a year. The Rio Earth Summit in 1992 concluded that about $150 billion a year would begin to address the worst environmental problems. If we acknowledge that speculative investments exacerbated the collapse of Asian economies (with ripple effects felt in Canada), and if we realize solutions to the problems of poverty and the environment are close at hand, the Tobin Tax on speculation has strong appeal.
Next week, the Flouse of Commons will hold a free vote on NDP MP Lome Nystrom’s private member’s motion for the government to take a leadership role to promote the implementation of a fee on currency speculation. Will our dollar need to dip to new record lows before we act?
The Road Ahead invites readers to advance specific solutions to Canada's political, social and economic problems. Unpublished submissions may run condensed as regular letters or appear on an electronic bulletin board.
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