Tobin Tax

James Tobin, Nobel Memorial Prize in Economics winner, suggested the Tobin tax...which was to tax all spot conversions of currency exchanges (when traders immediately trade one currency for another).

While you might not want a type of tax named after you, Tobin didn’t mind so much. Rather than just being a tax to raise revenue, the Tobin tax was meant to increase the cost of short-term currency swaps and reversals. By raising the cost, it would make investors think twice before pulling the currency exchange trigger. This would put brakes on currency markets, which would make them less volatile.

Tobin suggested this tax at a time when the global order of currency management was on the fritz. Leading nations tried to tie their currencies all together via the Bretton Woods system of monetary management in the early 1970s, but it kind of fell apart. Back to Currency Haywireland.

Unfortunately, the term "Tobin tax" has often been misused in recent years. Some people use it when talking about any short-term transaction tax, when really it’s about currencies specifically. We feel you, Tobin.