Currency Transaction Tax and its Conformity with the Free Movement of Capital and Monetary Policy

Taxation of financial transactions and currency exchange has been discussed and debated by economists and politicians ever since John Keynes first called for a taxation of stock market transactions. The financial crisis 2008-2009 and the vast expansion of currency exchange markets have intensified discussion on introducing regulatory practice to the currency exchange in the EU. By imposing a currency transaction tax, even at a very low rate, large sums of money could be collected to supplement the EU budget, meet UN Millennium Goals, or create a common rescue fund for bailing out economies in financial distress. However, imposing a tax on currency exchange is not possible without taking the supranational legal body of the EU into consideration. This study takes an initial look at the legal aspects of implementing a currency transaction tax, namely: Is implementation of a currency transaction tax compatible with the free movement of capital and the ESCB’s exclusive right to set monetary policy in the Euro zone?