The Currency Transaction Tax (CTT) is a proposed worldwide tax on all currency traded across national borders. It is gaining popularity among governments looking for ways to pay for international development and projects addressing global issues such as public health and climate change. But such a sweeping plan raises some big questions: how high should the tax be, how much money would it raise, and how would it affect foreign exchange markets?
Since the currency transaction tax does not yet exist, Rodney Schmidt uses a comparative foreign exchange transaction cost already in use—known as the bid-ask spread—as a model to calculate a tax rate for the CTT. His goal is to determine a rate that can raise a lot of money without disrupting the market. To see how the tax would operate, he examines statistically the historical relationship between bid-ask spreads and the volume of foreign exchange transactions. Based on his findings, he concludes that a CTT rate of 0.005% would have no negative impact on the amount of foreign currency being exchanged and would generate at least $33 billion a year in taxes.
Schmidt argues that the CTT is a feasible new source of revenue for development and other global projects. It is safe and easy to implement and can immediately raise billions in global, independent, and stable revenue each year.