Coping with and Cashing in on Capital Volatility

COPING WITH AND CASHING IN ON INTERNATIONAL CAPITAL VOLATILITY Graham Bird and Ramkishen S. Rajan The political economy of currency taxation suggests that the idea will receive more support if it can be shown to make a significant contribution to offsetting the perceived inefficiencies of private international capital markets. This paper explores what can be expected from a currency tax in this respect. It shows that there are simple but neglected analytical issues that make such a tax an attractive idea. If the tax is relatively ineffective in helping to avoid financial crises and calming markets, it will be relatively effective at providing the resources necessary to mitigate the aftermath of such events. The paper offers new proposals for using the revenue from currency taxation to finance the operations of the IMF.