alt Hacker NewsI think actually Tobin tax is the wrong word sorry. I don't mean just taxing FX transactions, I mean taxing all cross-border capital flows. So yes you can do everything in dollars (and a lot of the time the dollars never need to leave New York)
But eventually you do have to pay the workers and taxes in China in yuan, and ultimately that money comes from the US consumer, making some kind of US capital account transaction inevitable?
Maybe I'm missing something but I think it does work because ultimately a current account deficit mathematicaly has to be exactly balanced with a capital account surplus. You can attack the current account side with tariffs, but it's actually more elegant to attack the capital account surplus instead
> But eventually you do have to pay the workers and taxes in China in yuan, and ultimately that money comes from the US consumer, making some kind of US capital account transaction inevitable?
The thing you're missing is that money never actually has to cross the border when both parties to a transaction are on both sides of it. Corporation A gets money from the US consumer and pays it to Corporation B. The money is still in the US. It now belongs to Corporation B who invests it in US stocks etc. In exchange Corporation B provides <something> to Corporation A outside the US, which Corporation A can then convert into yuan outside the US.
It's equivalent to how money laundering works and why AML laws are a burdensome farce with a ~0% effectiveness rate.