Sunday, May 8, 2011

PBOC Adviser Mulls Tobin Tax

By Joy C. Shaw and Rose Yu

China can consider levying a Tobin tax and strictly limiting foreign investment in the commercial property sector as part of measures to curb short-term speculative capital inflows, Xia Bin, an adviser to the People’s Bank of China, said in an article in November’s edition of China Dealmaker magazine.

He also said China can “proactively and moderately increase the size of yuan appreciation” as China faces demand from the U.S. to expedite yuan appreciation, as well as pressure on China’s traditional industries under a rising yuan.

The Tobin Tax refers to a tax on spot currency conversions suggested by Nobel laureate James Tobin in the 1970s as a way to penalize short-term currency speculation and help keep a country’s currency stable.

Mr. Xia’s comments come as Beijing launched a string of policy tightening measures in recent weeks to combat inflation and hot money. Last week, China announced its fifth reserve requirement ratio hike for banks this year and issued new limits on foreigners’ purchases of residential or commercial property on the mainland.

But analysts said the likelihood China would levy a tax on foreign exchange transactions to curb hot money is slim given the country’s already strict capital control measures.

Mr. Xia, a prominent economist, is one of three PBOC advisers that make policy suggestions, but their comments don’t necessarily represent the government’s policy direction.

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