This letter is for financial industry professionals (current or former). Please forward the link to friends and colleagues who are.
SIGN-ON DEADLINE: June 12, 2012. To “sign,” please send your name, title, and contact information to: Sarah Anderson, email@example.com
Dear G20 and European leaders,
As individuals with first-hand knowledge and significant experience in the financial industry, we urge you to introduce modest financial transaction taxes (FTTs). These taxes could slow the widespread and increasing speculation and change the short-term trading mentality that has created instability in our financial markets. It also has the potential to raise significant revenue.
In the last few decades, financial market activity has increased tremendously, with the value of transactions now seventy times greater than the size of the real global economy.
The primary role of financial markets is to raise investment, allocate resources efficiently, and mitigate risk. However, much of today’s financial activity does not contribute to these goals. Computer-driven, high frequency trading, for example, allocates resources on the basis of algorithms designed to turn a short-term profit. These and similar trading strategies have been shown to not provide liquidity in stressed markets and can in fact increase short-term volatility.
Financial transaction taxes of a small fraction of a percent on each trade, such as those proposed by the European Commission and backed by a number of G20 countries, would reduce the incentives for such short-term speculation while having a negligible impact on long-term investment.
Concerns have been raised that FTTs could damage growth. But a growing body of evidence suggests that by reducing volatility and raising much needed revenue, the overall effect would be positive. Critics have also wrongly associated trading volume with efficiency-enhancing liquidity and failed to value the far more important market resilience and trust that have been lost in a world where algorithmic trading increasingly dominates. As many notable economists have observed, a modest transaction tax will actually improve the functioning of markets
FTTs have a proven track record. Numerous countries, including the UK, South Africa, Hong Kong, Singapore, Switzerland, and India, currently have FTTs on particular asset classes that raise billions of dollars. New FTTs, whether agreed by the G20, EU or by individual countries, offer a real opportunity to help restore the financial sector to its proper role, while raising massive revenues for people in urgent need at home and in the world’s poorest countries. We believe this is an opportunity that should not be missed.