Triffin Delimma

One of the reasons I’m blogging is to increase familiarity with a macroeconomic phenomenon called the “Triffin Dilemma.” The Triffin Dilemma correctly predicted the demise of Bretton Woods a decade in advance and continues to have dire consequences that are amplified by the absence of a gold standard. The Triffin paradox states that in order for a nation’s currency to be an international reserve currency, more dollars need to leave the country than flow in to meet the foreign demand for reserves. But at the same time the, for long-term confidence in the currency, more of the currency needs to flow into the country.

The reason this concerns me and I feel it should concern all Americans is two-fold:

1) I believe the consequences of the Triffin dilemma are the canvas that the current and future crises are painted on. There is plenty of blame to go around to be sure, (Fannie/Freddy, Washington, Federal Reserve, China etc…) but these are just agents acting under circumstances that wouldn’t exist without the paradox.

2) The only people discussing the Triffin Dilemma are the people who will profit from the dollar’s inevitable destruction, China and the IMF. The problem is that their solution to this problem is to remove the dollar and replace it with SDRs or some other basket fiat global currency.

I am going to be making a series of blogs on the cause and effect of the paradox and my proposed solution. Of course one powerless individual cannot change the international financial architecture so I am seeking other Austrian minded individuals to be discussing this, because I think that this is something that will need be addressed in the coming years, and we Austrians don’t want to miss out on another opportunity to predict another future crisis that is somewhat salvageable before it’s total collapse. Unfortunately the political will to wake up only happens after the collapse has happened, but at least we will continue to be the only remaining credible econ field if we play this right. Because as it stands right now, if the dollar collapses tomorrow and we don’t promulgate our Austrian alternative, the Keynesian central bankers will automatically win the debate since they will be the only ones to have addressed it with Keyne’s proposed Bancor (Pre-Bretton-Woods Keynesian proposal of what now is IMF and SDR’s). I think we can agree that centrally planned systems are inferior to a Hayekian solution of a free market system.

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