China is preparing a Tobin tax, a tax on capital transactions. At this stage for a zero percentage, but the writing is on the wall. It´s effect on China´s currency depends very much on how the government is going to use this tool, says finance professor Victor Shih in Bloomberg.
PBOC Deputy Governor Yi Gang raised the possibility of implementing the punitive measure late last year in an article written for China Finance magazine.
“If the PBOC makes it very clear that the Tobin tax will only apply to a narrow range of high frequency capital account transactions, it may not be contrary to the spirit of a freely usable currency,” said Victor Shih, a professor at the University of California at San Diego who studies China’s politics and finance. If the tax is slapped on a wide rage of transactions, it will hurt the yuan’s international appeal. “In general, any such restrictions only deter investors from holding yuan assets,” he said.
Are you looking for more experts on managing your China risk? Do check out this list.