The Triffin Dilemma

There is a fundamental incompatibility between the attainment of global economic stability and having a single national currency perform the role of the world’s reserve currency. This is hardly a new revelation. But events of the past few months have brought this topic back into the spotlight.

Belgian born American economist Robert Triffin first highlighted this incompatibility in the 1960s. He observed that having the US dollar perform the role of the world’s reserve currency created fundamental conflicts of interest between domestic and international economic objectives.

On the one hand, the international economy needed dollars for liquidity purposes and to satisfy demand for reserve assets. But this forced, or at least made it easy, for the US to run consistently large current account deficits.

Read Full Article