The foreign exchange, or Forex, is a decentralized marketplace for the trading of the world's currencies. James Tobin received the Nobel Prize in economics for his research on the financial system and its impact on inflation and employment. The Tobin tax is a tax levied on spot currency conversions, with the intention of disincentivizing short-term currency speculation, named after economist James Tobin. Of currency traded daily, only 5% of the transactions are related to trade and are real economic transactions. These speculations can create havoc in national budgets, Economic planning, etc.
But even at a low rate, if every financial transaction taking place globally was subject to the tax, billions in revenue could be raised. The Tobin tax is a duty proposed on spot currency trades to penalize short-term currency trading in order to stabilize markets and disincentive speculation. Financial MarketsThe term "financial market" refers to the marketplace where activities such as the creation and trading of various financial assets such as bonds, stocks, commodities, currencies, and derivatives take place. It provides a platform for sellers and buyers to interact and trade at a price determined by market forces. Floating Exchange RateThe floating exchange rate can be defined as the relative value of the currency of a country.
And this process is ever so slowly chipping away at those network effects. As the U.S. dollar necessarily loses some strength as a reserve money, the system will either need to deleverage or find a new source of collateral, a new antifragile asset. A move from 20% to 14.5% may not sound significant, but this is a nearly 30% decline in average volatility. The positive effect of such a shift has on underlying asset prices cannot be overstated. A system of declining volatility has come at the heavy cost of greater susceptibility to bouts of near-disastrous black swan events, external and internal shocks.
UBI may end up in the very long run as explicit social welfare programs, or “helicopter money.” Of course, during COVID-19, we saw some discreet examples of this, turning something merely theoretical into a tangible part of the societal zeitgeist. However, it is a mistake to assume a linear path, that such policy will now settle as the initial and most effective vector for such policy going forward. If inequality cannot be corrected by the only policy tools available, the risks for social instability will only rise further. Ironically, when stability is threatened, this tends to only increase levels of centralization. Facets of this law, more colloquially known as the “80/20 rule,” are observed not just in wealth distribution, but prolifically throughout much of nature and human social environments. Not so much value in the industrial sense; money, time, and effort, but from a individual perspective; community, companionship, self-discovery, and joy.
Unfortunately, the imbalances laid out in this essay are likely to only rise from here. I have discussed the path dependency of this conclusion by way of analyzing the options available forexhero to us, and solving for the path of least resistance. Excess saving leads to specialization, allowing for innovation and productivity gain, in turn generating additional savings.
And manipulation to affect policy outcomes would be the only way to ensure uncertainty’s suppression. If successfully orchestrated, volatility must eventually collapse toward a zero bound to accommodate this. After our modest digression into passive investing, let us now return to the last block in our chain. The final and most deadly flaw in the chain reaction socializing financial assets relates to volatility and the cost of capital. Mathematically speaking, publicly-administered financial markets that demand continuous appreciation, distributed broadly and without diversification, will require volatility to trend toward zero over time. Ever since evolution of mankind, change is the only constant phenomenon in all walks of life.
Such a concept of captively on-ramped capital is actually very similar to the stablecoin market in the Bitcoin and cryptocurrency ecosystems. Otherwise, there become too many outliers in the herd to corral, and the system becomes unmanageable. As networks proliferate, governments increasingly are driven existentially to ramp up the use of power and coercion against this natural force. As we begin to see, the Pareto principle is powerful in large systems, and is so important today as the world interconnects exponentially and in increasingly fractal patterns.
Further, we’ve witnessed a trend toward a reduction of quality of information. There is a diffusion of responsibility that engulfs the internet when ownership is so opaque and ephemeral. We are incentivized to create more noise than signal because when no one owns the land, there is no incentive to be a steward of that land to ensure its long-term sustainability, utility and productivity.
The Tobin tax has been controversial since its introduction. Opponents of the tax indicate it would eliminate any profit potential for currency markets as it is likely to decrease the volume of financial transactions, slowing global economic growth and development in the long run. Proponents state that the tax would help stabilize currency and interest rates because many countries' central banks do not have the cash in reserve that would be needed to balance a currency selloff. For example, in 2013, Italy adopted the Tobin tax not because it was faced with exchange rate instability, but because it was facing a debt crisis, an uncompetitive economy, and a weak banking sector. By extending its currency transaction tax to high-frequency trading , the Italian government sought to stabilize markets, reduce financial speculation, and raise revenue.
Mediated cross-cultural learning through exchange in higher agricultural education. Journal of Agricultural Education and Extension, 16, 5-22. The Asian financial crisis was a series of currency devaluations and other events that spread through many Asian markets beginning in the summer of 1997.
As such, the nature of bitcoin’s decentralized structure will be at the core of part two of this series. Volatility is the mathematical expression of what biologists and evolutionary scientists might call a “stressor.” Biological organisms crave stasis. Volatility, on the other hand, is a natural characteristic of all complex systems. This is because the greater the number of variables, the greater the number of possible outcomes. Stressors lead to adaptation and growth, which leads to survival, which builds resilience, which lays the foundation for more resilience and growth. This irony is further extended by the fact that just at the time when civilization least values such a high-powered form of durability and productivity happens to also be when these attributes are most desperately needed.
But it definitionally must do all this, and as we shall see, can only do all this from the outside. And the only way to be outside of a centralized system, is to be fully decentralized. Money, a human social technology of value and communication, is perhaps one of the few practical instances we can witness of a limitless power law function, as it stores labor over time. In a power law equation where time itself is the variable to which the function is raised, this creates a powerful compounding effect. That is, as long as the calculated value can persist over time. Interest earned, in a free market, is the equilibrium price required to balance one’s time preference of consumption relative to savings.
However, these improvements are limited solely to endeavors that we are comfortable deferring to computers to manage for us. In all activities where humans still require involvement or apprehension, we are completely outmatched. On top of this, technology can be a tool, but it can also be a weapon. For every search, storage and AI tool that has helped to unbundle the noise into some semblance of a signal, there are other software tools that re-bundle the signal once again back into noise. Particularly social media, mainstream media, political propaganda and social science professions that overconfidently apply the newfound data abundance. “Black swan” or “tail risk” events, by definition, are not predictable by any model.
Or worse, the upstart disruptors may never have a chance, and we would never even know what could have been. The Tobin tax is sometimes referred to as the Robin Hood tax, as many fx choice review see it as a way for governments to take small amounts of money from the people making large, short-term currency exchanges. At its best, debt is faith in future excess savings.
The currency transactions tax does not impact long-term investments. It is only imposed on the excessive flow of money that moves regularly between financial markets through the actions of speculators in search of high short-term interest rates. The tax is paid by banks and financial institutions that profit from market volatility by taking excessive short-term speculative positions in the currency markets.
Compound interest is one of the most impressive growth formulas experienced in the natural and economic worlds, and its most efficient avenue for success is antifragility. The Eurodollar system, U.S. dollars banked or held outside of the U.S. banking system, evolved to help accomplish this goal more efficiently at the global level. Antifragility, an idea popularized in the 2012 book “Antifragile” by Nassim Taleb, describes systems or phenomena that gain strength from disorder. This book, part of a larger work focused on philosophical, statistical, and economic misconceptions relating to systemic risk, uncertainty, and randomness, has become part of the larger canon of Bitcoiner manifestos. This is despite Taleb’s recent baffling divorce from the community, which while a tad perplexing, should not detract from some of his work’s takeaways.
To limit the financial market distortions, a base for any tax on international financial transactions should be as broad as possible. Tobin tax can be said as a compromise between totally free and strongly regulated global financial markets. The common denominator of all these costs is systemic fragility. As we kick the proverbial can, we are in essence just reallocating costs out into the future.
It helps an increasingly interconnected economy divide labor beyond its current stalemate. When there is no risk of material loss for capital, there becomes no discrimination as to how to invest it. The decision-making process becomes tied much more to government policy goals, cronyism and bribery, and other characteristics very similar to those of communist systems of governance. The corporation and the entrepreneur lose their utility in this world.
The more that human ingenuity and energy can link itself without entropy to its innate will to specialize, the more information we can decrypt. This means more societal nodes, synapses and economic pathways, leading to previously unthinkable new ideas and opportunities. However, while Bitcoin’s antifragility is indeed a powerful force, it would dissolve instantaneously without decentralization.
The Tobin tax, proposed by James Tobin in 1972, seeks to mitigate or eliminate these issues. The tax has been adopted by a number of European countries and the European Commission to discourage short-term currency speculation and stabilize currency markets. Monetary PoliciesMonetary policy refers to the steps taken by a country’s central bank to control the money supply for economic stability. For example, policymakers manipulate money circulation for increasing employment, GDP, price stability by using tools such as interest rates, reserves, bonds, etc.
The godfather of risk parity, Ray Dalio himself, just recently confirmed the view that he would rather own bitcoin than bonds. By providing legal protections like limited liability, the corporate structure allowed for individuals to combine resources without unmanageable personal risk, which in turn allowed for the competitive acquisition of capital for investment. Build Basic Android Apps With Java So, when the cost of capital and the risk of capital become immaterial, the existential purpose for the corporation becomes difficult to justify. And so the economy centralizes further with the erosion of one more source of decentralization. I recently came across a white paper authored by Ben Inker and Jeremy Grantham, famed hedge fund investors at GMO.
