If national security is under threat, China is likely to implement Tobin tax to take control of capital, a Chinese official said during the Boao Forum of the Asia Financial Cooperation Conference held in Hong Kong on Tuesday.
Chinese authorities have reportedly drafted rules to contain capital outflow by imposing Tobin tax, a theory suggested by Nobel Prize-winning U.S. economist James Tobin. The system would be imposed on international transactions and is designed to penalize short-term currency speculation.
Liu Mingkang, former head of China Banking Regulatory Commission, told the forum that there are three basic points that the regulator should take into account in enacting the tax: Transparency, sufficient information disclosure and clarified exit mechanism are indispensable, according to domestic financial news portal wallstreetcn.com.
Liu also urged that China should enhance the effectiveness of their currency swap agreement to counter potential risks.
"Capital flow is normal, which is part of the market economy," he was quoted as saying in media reports. However, unexpected inflow or outflow may cause negative effects, and market confidence plays a major role in that, according to Liu.
Currently, China is studying Tobin tax as a possible future policy tool to curb capital outflows, Wang Yungui, head of the policy and regulation department at China's State Administration of Foreign Exchange, said in March, according to Reuters.
However, he did not specify any timeline for rolling out the tax.
The country's foreign reserves dropped to $3.19 trillion in May, the lowest since December 2011, Reuters reported in June. It was the largest monthly drop since February.