Discussion Paper

No. 2009-46 | November 04, 2009
The Triffin Dilemma Again
(Submitted as Policy Paper)


Tiny changes in the American monetary policy can have dramatic effects on the rest of the world because of its double role of national and international currency. This is what I call the Triffin dilemma, an ever green concept in international finance. In the paper I show how it works through three examples: price of commodities, dollarization, and the international financial position of the US. I argue that to solve this situation, it would be important to create a more democratic monetary system, in which all the countries have a decision weight. In particular, I think that globalization and regionalization should be the two forces leading towards the new monetary system. The main economies should adopt the same currency through a system of fixed exchange rates (global money); developing countries should create regional monetary unions (regional money), preserving the real exchange rate as real shock absorber, but gaining in terms of time consistency and credibility.

Submitted as Policy Paper

JEL Classification


Cite As

Edoardo Campanella (2009). The Triffin Dilemma Again. Economics Discussion Papers, No 2009-46, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2009-46


Comments and Questions

Giovanni Gili - Reader Comment
December 21, 2009 - 09:57

see attached file

Anonymous - Referee Report 1
December 28, 2009 - 09:37

This is a non-orthodox policy paper arguing for the introduction of a world currency. This idea is generally criticized as unrealistic and inconclusive, but it is true that the same arguments were used also against the common currency in Europe. While I do not see the rationalize for this discussion ...[more]

... in general, this discussion has several prominent proponents including e.g. Nobel Prize laureate Robert A. Mundell. Nevertheless, the paper should review also some critical discussion on the world currency.

While I do not want to make general comments to this discussion, I have specific comments to the submission. Also in the discussion of this visionary project, the paper makes quite outdated impression. While the paper includes numerous references from 2005, there is only one paper from 2008 (which is missing in references) and one paper from 2009 (available in references but not used in the text). The paper does not refer to the financial crisis and even also not to China. The latter point is especially important because there is no possibility to discuss any new world financial arrangement without a deep discussion of China.

The discussion of the position of developing countries is largely contradictory in the paper. On the one hand, it is criticized that the interests of developing countries are not sufficiently reflected in the current financial system because they do not have any real influence on monetary policies of major currencies which are important for them. On the other hand, it is recommended that developing countries are excluded from the global currency and they should keep own national or regional currencies. Without the inclusion of developing countries, the global currency would be no more democratic than the current system. Moreover, I would argue that several countries participating in major currency areas (Panama and Ecuador with respect to the USD and Kosovo with respect to euro) perform comparably well. Especially China should be definitely considered among countries which should format the world financial system.

Numerous references used in the paper are missing in the list of references, while other referenced are not mentioned in the text. The clearly written, but there are several typos, which should be improved: page 8, heading of 2.2.3 “fincancial”, page 9, “devaluatins.:” page 10, “level.Financial”, page 13 “Mundell(2001)).

Edoardo Campanella - Reply to Referee Report 1
January 06, 2010 - 10:15

see attached file

Anonymous - Referee Report 2
January 06, 2010 - 10:23

see attached file

Jeffry Frieden - Invited Reader Comment
January 08, 2010 - 08:48

see attached file

Edoardo Campanella - Reply to Referee Report 2 and to Jeffry Frieden
January 26, 2010 - 10:02

see attached file