Triffin dilemma

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The Triffin Dilemma - one of the major problems of the gold-foreign exchange system, whose credibility provides gold in the reserve currency. Maintaining a steady gold price in the context of growing international trade is associated with the risk of liquidity shortage on an international scale. Here conflicts arise between the credibility of the stability of the reserve currency (exchangeable for gold) and international liquidity needs: if sufficient liquidity is ensured, maintaining the gold content may be difficult to implement (Triffin dilemma). The situation is related to the fact that there is no guarantee of balance between the amount of currency issued by the country maintaining the gold currency system and the demand of other countries for money reserves related to international transactions. Consequently, if a country with a golden currency system decides to adjust its money supply to the level of international transactions, it loses its freedom to use its own policy instruments. In addition, the reserve currency enters the rest of the world at the time the country maintains a gold-deficits balance of payments system. There are further difficulties, as such deficit may or may not be maintained, may not be sufficiently large, or economic interests or other economic policy objectives of the country with the golden currency system may be more important. If, despite all the condition of adjusting the balance of payments to the level of international transactions, then the problem of credibility of the stability of the value of the reserve currency appears. This happens when the amount of reserve currency held by central banks of the rest of the world is too high relative to the gold reserves of the country maintaining the gold currency system. This raises concerns about the ability to swap the reserve currency for gold, if one so requests.

The described discussions took place in reality in the post-war period. Initially, after a period of dollar shortage in the international market, when the gold dollar standard was in force, a large deficit in the US balance of payments solved the problem of lack of international liquidity better than the creation of Special Drawing Rights. At the same time, it raised concerns about the convertibility of the dollar. On August 15, 1971, US President R. Nixon was forced to suspend the gold exchangeability of the dollar, ending the existence of a foreign exchange gold system within the IMF. Bibliography

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