Globalizing Solidarity: The Case for Financial Levies
Updated: Sep 4
The Global Solidarity Dilemma in 2010
Writing in June 2010, in the direct aftermath of the devastating global financial crisis and amid a burgeoning sovereign debt crisis in Europe, the Committee of Experts to the Taskforce on International Financial Transactions and Development delivered this pivotal report. Convened by the Leading Group on Innovative Financing for Development, the Committee sought to address a forgotten emergency: the vast shortfall in finance required to meet international development and environmental commitments. The report identified a staggering resource gap of between $324 billion and $336 billion per year for the 2012–2017 period, required to meet Official Development Assistance targets and climate change obligations.
The authors diagnosed this funding crisis as a symptom of the "global solidarity dilemma". While the global economy had expanded rapidly, there was no effective mechanism to levy this globalised economic activity to pay for vital global public goods. With national governments facing unprecedented post-war levels of budget deficits and public debt, traditional aid channels were severely constrained. The report argued that if the international community failed to fund these mitigative measures, shared global economic, social, and environmental instability would ultimately undermine the very foundations of globalisation.
Evaluating Innovative Finance Mechanisms
To fill this immense funding gap, the Committee rigorously evaluated several innovative financing options against four criteria: sufficiency, market impact, feasibility, and sustainability. The experts analysed a Financial Activities Tax (FAT) on financial sector profits, a Value Added Tax (VAT) on financial services, a broad Financial Transaction Tax (FTT), a nationally collected Currency Transaction Tax (CTT), and a centrally collected multi-currency CTT.
While acknowledging that a broad FTT or a FAT had merit for domestic revenue generation or reimbursing national exchequers for financial bailouts, the Committee rejected them as the primary vehicle for funding global public goods. These domestic models suffered from an "asymmetry of revenue collection," where countries hosting major financial centres would disproportionately collect the funds, leading to the "domestic revenue problem" where political pressures would inevitably divert these revenues away from international development and back into domestic budgets.
The Committee determined that the international financial system, specifically the foreign exchange market, was the most appropriate point for an innovative levy. By 2007, the foreign exchange market had grown to more than 14 times the size of the real global economy. By tapping into this hyper-globalised sector, wealth could be redistributed at a scale capable of making a meaningful contribution to the world's environmental and developmental crises.
The Core Proposal: A Global Solidarity Levy
The report's central recommendation was the implementation of a "Global Solidarity Levy" (GSL), engineered as a centrally collected, multi-currency transaction tax. The proposal outlined a microscopic 0.005 per cent levy applied to foreign exchange transactions across major currencies, collected at the point of global settlement through mechanisms like the Continuous Linked Settlement (CLS) Bank or national Real Time Gross Settlement (RTGS) systems.
Despite its tiny rate, the immense volume of the foreign exchange market meant this levy possessed enormous revenue sufficiency. The Committee estimated that a globally coordinated 0.005 per cent tax on major currencies could generate up to $33.47 billion annually. Crucially, this mechanism bypassed the domestic revenue problem by collecting funds centrally through settlement infrastructure, ensuring the revenue remained dedicated to global public goods. The report recommended that these proceeds be directed into a new, dedicated Global Solidarity Fund, governed with the same transparency, accountability, and civil society representation successfully modelled by UNITAID and the Global Fund.
Addressing Market Impact and Feasibility
The Committee addressed sceptics who warned that a currency levy would harm ordinary consumers or drive financial institutions to evade the tax. The report demonstrated that the impact on the real economy would be imperceptible; for example, a retail transfer or migrant remittance of $1,000 would incur a tax of just 5 cents.
To counter the threat of geographical evasion or market flight, the experts highlighted the powerful economic and regulatory forces locking banks into central settlement systems. The systemic risk of defaulting counterparties, starkly illustrated by the 2008 collapse of Lehman Brothers, made the safety of central settlement systems like the CLS Bank indispensable. Furthermore, the Committee noted that international regulators under the Basel Committee were actively discussing applying additional capital adequacy requirements to foreign exchange transactions that bypass central settlement. The punitive cost of these capital requirements, combined with the loss of efficiency savings from central settlement, would vastly outweigh the negligible 0.005 per cent cost of the Global Solidarity Levy.
A Blueprint for Global Action
Upon its publication in 2010, Globalizing Solidarity: The Case for Financial Levies provided international policymakers with a technically robust, legally feasible blueprint for funding the world's most urgent challenges. By proving that a microscopic fee on the most lucrative market on earth could safely raise billions for development, the Committee of Experts armed the Leading Group with the evidence needed to push the Currency Transaction Tax to the forefront of global political debate. We invite you to download and explore the full original report to read the comprehensive economic analysis underpinning this historic proposal.
Frequently Asked Questions
Would the Global Solidarity Levy hurt migrant remittances or retail consumers?
No, the economic footprint on everyday transactions would be virtually non-existent. The report calculates that a standard $1,000 transfer would be subject to a levy of merely 5 cents, ensuring the tax remains highly progressive and targets wholesale financial activity.
Why couldn't banks just use derivatives to avoid paying the tax?
The report concluded that constructing complex derivative instruments purely to avoid a 0.005 per cent tax is economically irrational. The high costs and increased risks associated with exotic avoidance strategies would be far greater than the tiny cost of simply complying with the levy.
How would the revenue actually reach developing nations?
The Committee recommended establishing a new "Global Solidarity Fund" to receive and administer the proceeds. This facility would be governed transparently, with a board comprising representatives from both developed and developing nations, civil society, and the private sector, specifically targeting long-term health, education, and climate adaptation projects.
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