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Which of the following statements best describes the term Triffin dilemma?
- a)It refers to the dilemma of setting the right monetary policy rates so as to balance the twin objectives of price stability and growth.
- b)It refers to the dilemma of finding the rates of taxation so as to maximize revenue collection.
- c)It refers to the impossibility of having a fixed foreign exchange rate, free capital movement and an independent monetary policy at the same time.
- d)It refers to the conflict of economic interests that arises between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies.
Correct answer is option 'D'. Can you explain this answer?
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Verified Answer
Which of the following statements best describes the term Triffin dil...
- The Triffin dilemma or Triffin paradox is the conflict of economic interests that arises between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies.
- In the post-World War II scenario, countries devastated by the war needed enormous resources for reconstruction. Imports went up and their deficits were financed by drawing down their reserves. At that time, the US dollar was the main component in the currency reserves of the rest of the world, and those reserves had been expanding as a consequence of the US running a continued balance of payments deficit (other countries were willing to hold those dollars as a reserve asset because they were committed to maintaining convertibility between their currency and the dollar).
- The problem was that if the short-run dollar liabilities of the US continued to increase in relation to its holdings of gold, then the belief in the credibility of the US commitment to convert dollars into gold at the fixed price would be eroded. The central banks would thus have an overwhelming incentive to convert the existing dollar holdings into gold, and that would, in turn, force the US to give up its commitment. This was the Triffin Dilemma after Robert Triffin.
- Hence option (d) is the correct answer.
Most Upvoted Answer
Which of the following statements best describes the term Triffin dil...
The Triffin Dilemma:
The Triffin dilemma refers to the conflict of economic interests that arises between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies. The term was coined by Belgian-American economist Robert Triffin in the 1960s.
Explanation:
1. Background:
- During the post-World War II period, the US dollar became the dominant global reserve currency under the Bretton Woods system.
- The US dollar was backed by gold at a fixed exchange rate, and other countries held dollars as reserves to facilitate international trade and finance.
2. Role of the Global Reserve Currency:
- As the global reserve currency, the US had to ensure liquidity in international markets by running persistent current account deficits.
- This meant that the US had to supply the world with dollars, which required running a trade deficit to accommodate the demand for dollars.
3. Short-term Domestic Objectives:
- To maintain global liquidity, the US had to ensure that there was a steady supply of dollars in the international markets.
- This required maintaining low-interest rates and accommodative monetary policy to stimulate domestic demand and promote economic growth.
4. Long-term International Objectives:
- However, the accommodative monetary policy and low-interest rates needed to maintain global liquidity could lead to inflationary pressures and depreciation of the US dollar.
- This created a conflict with the long-term international objective of maintaining a stable and strong global reserve currency.
5. Triffin Dilemma:
- The Triffin dilemma arises from the fact that the country issuing the global reserve currency must balance short-term domestic objectives with long-term international objectives.
- The dilemma is that the policies needed to ensure global liquidity and meet short-term domestic goals can undermine the long-term stability and credibility of the global reserve currency.
6. Implications:
- The Triffin dilemma has important implications for countries whose currencies serve as global reserve currencies, especially for the US dollar.
- It highlights the inherent tension between domestic economic priorities and the responsibilities associated with being a global reserve currency.
- The Triffin dilemma suggests that the dominance of the US dollar as a global reserve currency may be inherently unstable and unsustainable in the long run.
Conclusion:
In conclusion, the Triffin dilemma refers to the conflict between short-term domestic objectives and long-term international objectives for countries whose currencies serve as global reserve currencies. It highlights the challenge of balancing the need for global liquidity with the stability and credibility of the global reserve currency. The dilemma has important implications for the US dollar and raises questions about the sustainability of its role as the dominant global reserve currency.
The Triffin dilemma refers to the conflict of economic interests that arises between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies. The term was coined by Belgian-American economist Robert Triffin in the 1960s.
Explanation:
1. Background:
- During the post-World War II period, the US dollar became the dominant global reserve currency under the Bretton Woods system.
- The US dollar was backed by gold at a fixed exchange rate, and other countries held dollars as reserves to facilitate international trade and finance.
2. Role of the Global Reserve Currency:
- As the global reserve currency, the US had to ensure liquidity in international markets by running persistent current account deficits.
- This meant that the US had to supply the world with dollars, which required running a trade deficit to accommodate the demand for dollars.
3. Short-term Domestic Objectives:
- To maintain global liquidity, the US had to ensure that there was a steady supply of dollars in the international markets.
- This required maintaining low-interest rates and accommodative monetary policy to stimulate domestic demand and promote economic growth.
4. Long-term International Objectives:
- However, the accommodative monetary policy and low-interest rates needed to maintain global liquidity could lead to inflationary pressures and depreciation of the US dollar.
- This created a conflict with the long-term international objective of maintaining a stable and strong global reserve currency.
5. Triffin Dilemma:
- The Triffin dilemma arises from the fact that the country issuing the global reserve currency must balance short-term domestic objectives with long-term international objectives.
- The dilemma is that the policies needed to ensure global liquidity and meet short-term domestic goals can undermine the long-term stability and credibility of the global reserve currency.
6. Implications:
- The Triffin dilemma has important implications for countries whose currencies serve as global reserve currencies, especially for the US dollar.
- It highlights the inherent tension between domestic economic priorities and the responsibilities associated with being a global reserve currency.
- The Triffin dilemma suggests that the dominance of the US dollar as a global reserve currency may be inherently unstable and unsustainable in the long run.
Conclusion:
In conclusion, the Triffin dilemma refers to the conflict between short-term domestic objectives and long-term international objectives for countries whose currencies serve as global reserve currencies. It highlights the challenge of balancing the need for global liquidity with the stability and credibility of the global reserve currency. The dilemma has important implications for the US dollar and raises questions about the sustainability of its role as the dominant global reserve currency.
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Which of the following statements best describes the term Triffin dilemma?a)It refers to the dilemma of setting the right monetary policy rates so as to balance the twin objectives of price stability and growth.b)It refers to the dilemma of finding the rates of taxation so as to maximize revenue collection.c)It refers to the impossibility of having a fixed foreign exchange rate, free capital movement and an independent monetary policy at the same time.d)It refers to the conflict of economic interests that arises between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies.Correct answer is option 'D'. Can you explain this answer?
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Which of the following statements best describes the term Triffin dilemma?a)It refers to the dilemma of setting the right monetary policy rates so as to balance the twin objectives of price stability and growth.b)It refers to the dilemma of finding the rates of taxation so as to maximize revenue collection.c)It refers to the impossibility of having a fixed foreign exchange rate, free capital movement and an independent monetary policy at the same time.d)It refers to the conflict of economic interests that arises between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies.Correct answer is option 'D'. Can you explain this answer? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Which of the following statements best describes the term Triffin dilemma?a)It refers to the dilemma of setting the right monetary policy rates so as to balance the twin objectives of price stability and growth.b)It refers to the dilemma of finding the rates of taxation so as to maximize revenue collection.c)It refers to the impossibility of having a fixed foreign exchange rate, free capital movement and an independent monetary policy at the same time.d)It refers to the conflict of economic interests that arises between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies.Correct answer is option 'D'. Can you explain this answer? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Which of the following statements best describes the term Triffin dilemma?a)It refers to the dilemma of setting the right monetary policy rates so as to balance the twin objectives of price stability and growth.b)It refers to the dilemma of finding the rates of taxation so as to maximize revenue collection.c)It refers to the impossibility of having a fixed foreign exchange rate, free capital movement and an independent monetary policy at the same time.d)It refers to the conflict of economic interests that arises between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies.Correct answer is option 'D'. Can you explain this answer?.
Which of the following statements best describes the term Triffin dilemma?a)It refers to the dilemma of setting the right monetary policy rates so as to balance the twin objectives of price stability and growth.b)It refers to the dilemma of finding the rates of taxation so as to maximize revenue collection.c)It refers to the impossibility of having a fixed foreign exchange rate, free capital movement and an independent monetary policy at the same time.d)It refers to the conflict of economic interests that arises between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies.Correct answer is option 'D'. Can you explain this answer? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Which of the following statements best describes the term Triffin dilemma?a)It refers to the dilemma of setting the right monetary policy rates so as to balance the twin objectives of price stability and growth.b)It refers to the dilemma of finding the rates of taxation so as to maximize revenue collection.c)It refers to the impossibility of having a fixed foreign exchange rate, free capital movement and an independent monetary policy at the same time.d)It refers to the conflict of economic interests that arises between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies.Correct answer is option 'D'. Can you explain this answer? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Which of the following statements best describes the term Triffin dilemma?a)It refers to the dilemma of setting the right monetary policy rates so as to balance the twin objectives of price stability and growth.b)It refers to the dilemma of finding the rates of taxation so as to maximize revenue collection.c)It refers to the impossibility of having a fixed foreign exchange rate, free capital movement and an independent monetary policy at the same time.d)It refers to the conflict of economic interests that arises between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies.Correct answer is option 'D'. Can you explain this answer?.
Solutions for Which of the following statements best describes the term Triffin dilemma?a)It refers to the dilemma of setting the right monetary policy rates so as to balance the twin objectives of price stability and growth.b)It refers to the dilemma of finding the rates of taxation so as to maximize revenue collection.c)It refers to the impossibility of having a fixed foreign exchange rate, free capital movement and an independent monetary policy at the same time.d)It refers to the conflict of economic interests that arises between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies.Correct answer is option 'D'. Can you explain this answer? in English & in Hindi are available as part of our courses for UPSC.
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