Robert Triffin’s famous “dilemma” debate continues to animate policymakers and commentators. To guide Trump’s economic adviser, Stephen revives the theme by arguing in a new article that inelastic global demand to make the impossible cost of the US economy impossible is impossible. In a recent column, Joseph Sternberg, by contrast, Triffin avoids predicting never materialized as an abolished economist. Still, Bush overlooks an important financial aspect.
The real problem is not that the world will use the dollar to reserve currency. If nothing else, it is a blessing, an “exorbitant privilege” and so. The problem is that the US consistently links this privilege to a permanent financial deficit. The financial factors are 11 years old. The so-called triffin dilemma is a natural inevitability and appears to be Polly’s choice.
Triffin originally claimed that the Breton Woods Gold System was destined. To provide liquidity to the world, the US had to implement an external deficit. This ultimately undermined the confidentiality of the dollar’s conversion to gold. His reasoning was based on the assumption that the US could never give up the conversion of gold. However, Nixon’s decision in 1971 did exactly that, revealing that the “dilemma” was mercilessly unforgiving. Triffin lacked imagination, or perhaps political realism, to foresee that the US might separate the dollar from gold and continue issuing debt without restrictions.
Sternberg seizes this in this respect in order to distrust the wholesale of Triffin. But this is too harsh. Deeper insights – the status of reserve currency interacts with domestic policy, although it can create global imbalances – remains in effect. What he missed was the political willingness to abandon gold, and what Sternberg misses is the way fiscal policy drives pathology related to the dollar system.
They argue that permanent foreign demand for safe dollar assets will lead to chronic overvaluation of the dollar, weakening US production and calling for a commune of industry. I interpret the trade deficit as a mechanism by which the US “exports” Treasury securities and supplies them to the world, such as reserves. From this perspective, the American deficit is not a bad one, but a structural necessity, a ruthless paradox of twin deficits and ultimate financial tensions.
However, Milan’s framework treats the US government’s financial stance as an afterthought. I stressed the demand side (foreigners want the dollar) while ignoring the supply side (the US issues them through the public deficit).
Contrary to these views, I would like to point out that if the US is accustomed to chronic fiscal disability, there is no inherent need for evil consequences. Without government intent, foreign demand for dollar assets will not automatically be converted into financial liabilities into productive UN flows. Instead, it takes two healthy forms:
1. Private capital allocation. Foreigners seeking dollar-controlled assets must invest in private American companies. This will focus on global savings towards productive investments. This generates enough revenue to expand capacity, expand innovation and ultimately repay creditors.
2. Cash balance from asset exchanges. Alternatively, foreigners can accumulate dollars by selling assets to the United States. In such cases, capital inflows did not require the US budget deficit, but arising from reallocation of assets across borders.
These mechanisms play Milan’s claim that triffin dynamics are needed to lock the US into a permanent deficit. Pathology is an imbalance for structural prosecutors in Washington Lons, and only occurs when foreign demand for safe assets is converted to public consumption subsidies rather than productive investments.
Sternberg is correct that the original prediction of Triffin failed. The world did not collapse into deflation, and the dollar survived the end of Breton Woods. However, his dismisal overlooks the innovations of the prosecutors that made this possible. The US effectively replaces gold anchors with its lack of financial obligations as the backbone of the system. This worked, but development was never envisaged only by transforming the American public sector into a major consumer of global savings.
The true “dilemma” allows for the condemnation of US prosecutors rather than the iron law of reserve currency. If the US balances its budget, global demand for dollar assets could be met through private sector channels that drive productive growth. Reserving demand only leads to overconsumption and accumulation of debt, if the public sector is running a permanent deficit.
The path forward is therefore not to regret Triffin’s logic or to resign in Milan’s decision, but to collect the nature of the conditioning of the matter. The US dollar can continue to be the world’s reserve currency without any unscrupulous consequences – IPH, and only if the US prosecutor’s policy avoids exporting its deficit exports to the world.
Leonidas Zemanovitz holds a senior fellow at the Liberty Fund with a degree in law from the federal university of Do Rio Grande Do Sul in Brazil and a doctorate of economics from Rey Juan Carlos from the University of Spain.
