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Lex: Tobin tax

The Tobin tax was the brainchild of James Tobin, a US Nobel Prize-winning macroeconomist. As described by Tobin, the tax involves applying a small charge - of as little or less than 0.1 per cent - on foreign currency transactions to protect countries from exchange-rate volatility caused by short-term currency speculation. The idea originated in the 1970s, when the collapse of the Bretton Woods system of fixed exchange rates ushered in a period of greater exchange-rate volatility. At that time, though, capital markets were still closely controlled by national governments. Ben McLannahan analyses the positive response from Japan's banks.