Although relatively few in number, large international banks dominate the global FX
market. The ‘economic footprint’ of the CTDL would, in the first instance, fall upon
these large financial institutions that are members of the CLS Bank and the Real Time
Gross Settlement systems (RTGS). There is little doubt that they could comfortably
absorb the levy given the size of their profits, however, they will as far as possible pass
on these costs to their wide range of clients in the form of a slightly higher spread. The
CLS Bank estimates that it settles an average of 200,000 separate transactions (about
half of the global total) every day, which gives some sense of the number of ultimate
participants in the global FX market. The impact of the CTDL on a specific currency
would therefore be dispersed widely throughout the global financial system, with
minimal impact on any one institution.
In further addressing this point we will use the example of a 0.005% CTDL on sterling.
As discussed, the CLS bank processes an average of 200,000 FX transactions every
day. In line with the global picture, we assume that 17.5% of these have sterling on one
side of the trade, which gives 34,000 sterling transactions in the CLS system per day.
However, the CLS Bank settles only around half of all FX transactions, which suggests a
global figure of 68,000 sterling trades per day. Over a year, therefore, we can estimate
the total number of sterling transactions as being somewhere in the order of 17.7
million carried out by tens of thousands of participants. For the 17.7 million ultimate
transactions, the impact of the CTDL would be in the region of $117 per trade, on an
average trade size of a little over $2 million.
For corporations, however, the situation is clearly different. The UK exports somewhere
in the region of $380 billion worth of goods and services per year. Based on the profit
margins of UK companies from 1990 to 2002, we assume an average margin of 10%.30
Ten per cent of $380 billion is $38 billion, which we take as a rough estimate of the
annual profit of the UK’s export sector.
From \”Taking the Next Step\”.
You note that they say that spreads would widen? And that this would determine what the actual incidence of the tax is?
And further, that they then, when talking about the incidence, only talk about the tax itself and not about the effect of the spreads?
This really ain\’t good work you know.