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【Abstract】 As the Triffin dilemma states, it is inevitable that a country wants to protect its national savings level while taking into account international liquidity issues. Can the emergence of currency bring about a turning point? As the only international reserve currency, the US Federal Reserve Notes (US dollar) have brought many benefits to business development. However, it also has many disadvantages.
The most prominent point is the famous "Triffin Dilemma" - this dilemma arises when a country encounters a conflict in solving domestic short-term problems and international long-term problems.
If a country's currency has to meet international needs, then in the long run this will lead to a trade deficit.
The US dollar is a victim of the "Triffin Dilemma". However, Bitcoin, as a "stateless" currency, will make up for this shortcoming and provide stronger support for the globalized economic system.
The Triffin Dilemma
Anyone who studies economics and finance knows the "Triffin paradox," or the Triffin dilemma. The Bretton Woods system proposed by American economist Robert Triffin in his book "Gold and the Dollar Crisis: The Future of Free Convertibility" has an inherent contradiction that it cannot overcome: the United States wants to contribute to global economic growth. Since the dollar is linked to gold, and other countries' currencies are linked to the dollar, although the dollar has gained the status of an international core currency, in order to develop international trade, countries must use the dollar as a settlement and reserve currency, which will cause the money flowing out of the United States to continue to settle overseas, resulting in a long-term trade deficit for the United States; and the premise of the dollar as the core of the international currency is that the dollar value must be kept stable and strong, which in turn requires the United States to be a country with a long-term trade surplus. These two requirements contradict each other, and therefore it is a paradox. It is this "difficulty" that determines the instability of the Bretton Woods system and the inevitability of its collapse.
In March 2009, during the economic crisis, Zhou Xiaochuan, the governor of the People's Bank of China, who is known for his reforms, wrote an article entitled "Thoughts on Reforming the International Monetary System". In the article, he clearly proposed to use the Special Drawing Rights of the International Monetary Fund to replace the US dollar as a super-sovereign reserve currency, namely the "world dollar". Moreover, he believes that this super-sovereign reserve currency not only overcomes the inherent risks of sovereign credit currency, but also provides the possibility of regulating global liquidity. An international reserve currency managed by a global institution will make it possible to create and regulate global liquidity. When a country's sovereign currency is no longer used as a measure and reference for global trade, the country's exchange rate policy will greatly enhance the effect of regulating imbalances. These can greatly reduce the risk of future crises and enhance the ability to deal with crises.
However, Zhou Xiaochuan's proposal did not receive a good response, because economists believe that replacing the US dollar with the Special Drawing Rights of the International Monetary Fund is a move that has no future. So far, there has been no good solution.
John Nash's response
The late famous mathematician John Nash also made great efforts to solve the Triffin Dilemma. He is considered to have provided theoretical support for the invention of Bitcoin and is also an advocate of monetary reform.
What Nash wanted was to establish a long-term stable international reserve mechanism, under which each country could operate independently and make up for the shortcomings of credit-based currencies.
Cryptography and virtual currencies seemed to fill the need, and so, based on John Nash’s theory, Bitcoin was born.
Can Bitcoin really solve the Triffin dilemma?
As the Triffin dilemma states, it is inevitable that a country wants to protect the national savings level while taking into account the issue of international liquidity. However, can the emergence of Bitcoin bring about a turnaround?
If we look at it from the following aspects, Bitcoin may really be a good solution.
1. Stable value
In a recent analysis of Bitcoin's price fluctuations, Eli Dorado concluded that Bitcoin's stability is similar to the trend of the euro over the past 15 years. The US Federal Reserve also found that the number of Bitcoin users doubles approximately every 8 months.
2. Issuing currency based on rules
This is perhaps the most interesting point in the Bitcoin economy. Here we have a great example of monetary policy.
In the 20th century, central banks and people’s decisions were the catalysts for monetary policy, but now this role is replaced by the time-limited issuance rules of cryptocurrencies. Computerized currency issuance can make monetary policy more solid because it is more adaptable to external changes.
3. Controllable supply plan
Compared to traditional currencies, Bitcoin’s supply schedule is relatively less flexible. Therefore, at any time (in the past or in the future), we can accurately determine the supply of Bitcoin and make necessary adjustments to domestic policies in a timely manner.
In fact, as people gradually become more familiar with cryptocurrencies, Bitcoin has more and more users. I believe that the Triffin dilemma that has plagued the economic world will soon be solved.
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