The bank buys back its currency when a 'glut' caused by an investor selloff threatens to reduce the currency's value. In the past, most central banks had enough cash in reserve to offset any selloff or 'attack'. Not any longer. Speculators now have more cash than all the world's central banks put together. Official global reserves are less than half the value of one day of global foreign-exchange turnover.
Many countries are simply unable to protect their currencies from speculative attack.
By cutting down on the overall volume of foreign-exchange transactions, a Tobin Tax would mean that central banks would not need as much reserve money to defend their currency. The tax would allow governments the freedom to act in the best interests of their own economic development, rather than being forced to shape fiscal and monetary policies according to demands of fickle financial markets. By making crises less likely, the tax would help avoid the social devastation that occurs in the wake of a financial crisis. It could also be a significant source of global revenue at a time when foreign aid is decreasing and strong domestic anti-tax sentiments are reducing the ability of governments to raise revenue. In the face of increasing income disparity and social inequity, the Tobin Tax represents a rare opportunity to capture the enormous wealth of an untaxed sector and redirect it towards the public good.