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The Triffin dilemma again

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  • Campanella, Edoardo

Abstract

Tiny changes in the American monetary policy can have dramatic effects on the rest of the world because of dollar's double role of national and international currency. This is the Triffin dilemma. The paper shows how it works through three examples: price of commodities, dollarization, and the international financial position of the US. And it makes a proposal to solve these issues, creating a more stable monetary system. In particular, it suggests the creation of an international monetary system of block regional currencies. Globalization and regionalization should be the two forces leading towards the new monetary system. The US and Europe should consider to adopt the same currency through a system of fixed exchange rates (global currency). This currency should perform its duty of anchor of the system, reducing global imbalances and gyrations in price of commodities. Developing countries, by contrast, should create regional monetary unions (regional currencies), preserving the real exchange rate as shock absorber, but gaining in terms of time consistency and credibility.

Suggested Citation

  • Campanella, Edoardo, 2010. "The Triffin dilemma again," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 4, pages 1-18.
    • Handle: RePEc:zbw:ifweej:201025
    DOI: 10.5018/economics-ejournal.ja.2010-25
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    References listed on IDEAS

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    1. Bayoumi, Tamim & Eichengreen, Barry, 1992. "Shocking Aspects of Monetary Unification," Department of Economics, Working Paper Series qt791143kp, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    2. Mr. Gian M Milesi-Ferretti & Mr. Olivier J Blanchard, 2009. "Global Imbalances: In Midstream?," IMF Staff Position Notes 2009/029, International Monetary Fund.
    3. Alberto Alesina & Robert J. Barro & Silvana Tenreyro, 2003. "Optimal Currency Areas," NBER Chapters, in: NBER Macroeconomics Annual 2002, Volume 17, pages 301-356, National Bureau of Economic Research, Inc.
    4. Tamim Bayoumi & Barry Eichengreen, 1992. "Shocking Aspects of European Monetary Unification," NBER Working Papers 3949, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Yap, Josef T., 2011. "The Political Economy of Reducing the United States Dollar`s Role as a Global Reserve Currency," Discussion Papers DP 2011-13, Philippine Institute for Development Studies.
    2. Michael D. Bordo & Robert N. McCauley, 2019. "Triffin: Dilemma or Myth?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 67(4), pages 824-851, December.
    3. Yap, Josef T., 2011. "The Political Economy of Reducing the US Dollar’s Role as a Global Reserve Currency," ADBI Working Papers 302, Asian Development Bank Institute.

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    More about this item

    Keywords

    Triffin dilemma; global currency; regional monetary union; dollarization;
    All these keywords.

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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