The Triffin dilemma revisited
Speech by Lorenzo Bini Smaghi, Member of the Executive Board of the ECB,
at the Conference on the International Monetary System:
sustainability and reform proposals, marking the 100th anniversary of Robert Triffin (1911-1993),
at the Triffin International Foundation, Brussels, 3 October 2011.
...3. The dilemma today: What has changed? What is still valid?
"What has changed since Triffin’s times? Well, the way in which the IMS works and thus the modalities through which the dilemma operates have changed considerably; but the fundamental tension between short-term domestic policy incentives and the stability of the IMS has not. Hence the Triffin dilemma is, in its essence, still alive and well..."
4. Is it possible to escape Triffin?
"In the event, Triffin was proved right not in the strict sense, but in a broader sense. Short-sighted policies that support unsustainable growth models not only tend to fuel the booms that precede financial crises, but may also, over the longer run, undermine the confidence that is the basis for the reserve asset status of one or more national currencies. Even the more flexible IMS of today may therefore, in this sense, prove inherently unstable.
To obtain the missing link between the policy discipline of major reserve issuers and holders on the one hand and global stability on the other, we need incentives to prevent them from causing negative externalities. And such incentives can only stem from a mix of i) internationally cooperative policy actions, ii) proper crisis responses and iii) structural developments..."
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