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The Triffin paradox has applied to the peripheral euro-zone countries: Will it apply to the United States?
The Triffin paradox describes the following sequence: when a country has an international reserve currency, it abuses it and runs up too much debt ; a ccordingly, its solvency and the quality of its currency deteriorate, and eventually its currency loses its international reserve currency status. This is exactly what happened with the peripheral euro-zone countries: their euro membership enabled them to run up large domestic and external debts. But, in 2010, overindebtedness and the associated real estate bubble saw them lose their reserve currency status in the sense that even though they were still in the euro, they could no longer borrow from the rest of the world; This could now happen with the dollar : t he dollar’s international reserve currency role enables the United States to run up a large external debt without difficulty. But sooner or later, is the dollar not going to lose its reserve currency status, especially if today’s stimulatory fiscal policies further increase the US external deficit?
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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