Triffin dilemma
The tension facing a reserve-currency issuer: supplying the world with liquidity can undermine confidence in the currency’s value and convertibility.
Reserve currency: A currency widely held by governments and institutions for international payments, reserves, and financial transactions. The dilemma arises when one national currency must serve as the world’s reserve asset.
Robert Triffin: A Belgian-American economist known for analyzing international monetary institutions and the dollar’s reserve-currency role. He articulated the conflict that later took his name.
United States balance of payments: The record of U.S. transactions with the rest of the world, including trade, income, and financial flows. U.S. external deficits and capital flows feature in arguments about supplying dollar reserves.
Jagdish Bhagwati: An Indian-American economist known for work on international trade and criticism of protectionism. His phrase “dollar hegemony” names a broader critique of dollar dominance, not Triffin’s specific liquidity-confidence tension.
Balance of payments: A record of transactions between a country’s residents and the rest of the world over a period. Supplying foreign holders with reserve assets often entails persistent external deficits.
Gold-exchange standard: A monetary system in which countries hold foreign currencies, often alongside gold, as reserve assets. The postwar system depended on dollars as well as gold for international reserves.
Global saving glut: A persistent excess of desired global saving over desired investment at prevailing interest rates. This account offers a different explanation for U.S. external imbalances than reserve demand alone.
Impossible trinity: The claim that a country cannot simultaneously maintain a fixed exchange rate, free capital movement, and independent monetary policy. It concerns a domestic policy trade-off rather than the reserve issuer’s global supply dilemma.
Liquidity: The ability to obtain cash or trade an asset quickly without substantially changing its price. Global reserve demand requires abundant assets that institutions can readily use or sell.
Bretton Woods system: The postwar international monetary system of fixed exchange rates, centered on a dollar convertible into gold for foreign monetary authorities. Its reliance on dollar reserves made Triffin’s conflict concrete.