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Triffin Dilemma

A global reserve currency must be available in large amounts so other countries can use it for trade, savings, and financial contracts. The issuing country may supply that currency by running external deficits. Over time, however, those same deficits can weaken confidence in the currency’s value. This conflict is called the Triffin Dilemma, named after economist Robert Triffin. He applied the idea to the US dollar and the earlier Bretton Woods system. The dilemma is not a prediction that a reserve currency must collapse. It describes the tension between the world’s need for international liquidity and the issuing country’s need to preserve confidence in its money.

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