Consultant Proposes Currency Trading Tax

Nancy Skinner wrote to suggest a proposal to stabilize global currency markets and get developing nations to embrace an agreement on climate change. She recommended the imposition of an "infinitesimal" transaction tax on short-term currency trading.

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                      FAX TRANSMISSION -- MEMO

DATE: November 26, 1997       TIME: 4:29 PM

FROM: Nancy Skinner           PHONE: 773-880-1391

RE:

CC:

NUMBER OF PAGES INCLUDING COVER SHEET: [2]

MESSAGE

[1] Given your involvement in the Asian currency crisis, it was suggested to me that I should send my proposal to you. It is a creative solution for solving two problems at once. This one-pager outlines how you could both:

1) Stabilize global currency markets; and

2) Get developing nations to eagerly embrace an agreement on

[2] I have received a lot of support for my idea and thought I'd take a chance and pass it by you. I have much more backup and detail if you're interested. Thanks for our consideration!

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THINKING OUT OF THE BOX

FINDING A SHARED SOLUTION TO THE CURRENT

BY NANCY A. SKINNER

[3] The world is facing two supposedly unrelated crises but if we try to tackle them together we can discover a mutual solution -- a modest transaction tax on currency flows to moderate speculation, the proceeds of which will be fed into helping the developing nations develop environmentally sustainable infrastructures, reducing their resistance to signing an accord on Climate Change in Kyoto.

[4] CURRENCIES IN CRISIS: A currency crisis which began in Thailand this summer has spread rapidly across Southeast Asia. The latest victim is South Korea which has asked the US and Japan together with the IMF to help with a bailout that could require between $50 to $100 billion to stabilize the world's 11th largest economy. With South Korea in free fall, Japan is under pressure to devalue the yen or liquidate it's holding of US securities. Neither option is attractive from the US perspective. A devalued yen would elevate trade fiction with the US and a liquidation of US Treasuries would cause interest rates to rise in the US, hampering growth.

[5] "There's something wrong with our exchange rate mechanisms here. They are introducing unnecessary volatility", says Marshall Mays, chief strategist at Nikko Research Centre. "I don't know what the solution is because I don't think necessarily going back to the gold standard is the solution either. I don't think anybody knows what the solution is. It's really uncharted territory for the global financial markets." However, a growing chorus of traders, economists and even finance ministers are calling for a transaction tax on currency trading to moderate wild fluctuations and currency attacks which can destabilize entire national economies.

[6] CLIMATE CHANGE TALKS IN CRISIS: With the final round of talks on an accord set for December 1-10, certain obstacles have threatened to block any real progress. The impasse is the result of the unwillingness of the developing nations to agree to cuts in greenhouse gas emissions, based on their concerns that those cuts will harm their growth. The US will not be able to ratify a treaty that does not include agreements by the "developing" nations such as China, India and Brazil. The result is stalemate. At the same time, rapid globalization in the 90's is helping to build "un"sustainable infrastructures based on out-dated and polluting technologies in these developing countries. If the developing nations continue to industrialize as did the West, using inefficient fossil fuels for transportation and production, almost all hope will be lost that the world can limit its CO2 [carbon dioxide] emissions necessary to combat Climate Change.

21ST CENTURY "OUT OF THE BOX SOLUTION"

[7] Impose an infinitesimal "Transaction Tax" on short-term currency trading which will moderate wild fluctuations (and speculation attacks) without interfering with long-term cross-border investment flows and use the majority of the proceeds to help the developing nations build sustainable infrastructures, leapfrogging the West, and reducing their resistance to sign on to Climate Change agreements. THE RESULT: More stable global financial markets, and an agreement on significant cuts in greenhouse gas emissions which ensures that the industrialization of the third world does not undermine global environmental security.