Triffin's Dilemma
Written by Steve Miller
Introduction
Identified by economist Robert Triffin in 1960, Triffin's Dilemma is the tension between domestic and international monetary policy for the country issuing the global reserve currency. The dilemma reflects the requirement for the issuer of the global reserve currency’s to supply its currency above and beyond domestic requirements. This enables foreign nations to hold it in the quantities they desire, which leads to persistent trade deficits.
This idea highlights the challenges associated with the rise of the dollar as the global reserve currency under the Bretton Woods system that emerged in the aftermath of World War II. The US enjoyed low cost of capital due to high demand for its currency, but incurred a persistent negative trade balance due to this demand. The resulting impact is an unstable growth model where the US over consumes while export driven nations under consume, leading to a glut of savings as exporters hoard dollars while the US and other importers under invest.
Suggested Reading
How The Triffin Dilemma Affects Currencies by Brent Radcliffe
Why Bitcoin May Solve This Age-Old Economic Paradox by Travis Patron