As I was reading this excellent post by Brad Setser, I found myself thinking of Robert Triffin. And then I followed Setser’s link and found that that governor of the People’s Bank of China was explicitly stating that “The Triffin Dilemma, i.e., the issuing countries of reserve currencies cannot maintain the value of the reserve currencies while providing liquidity to the world, still exists. ”
The Chinese are clearly getting worried, which is an important fact in itself. And what a world we live in, when a Communist central banker can come out so clearly in favour of Bancor!
Now, I guess you could argue that the role of China in the past few years has been much less passive than the Triffin analogy would suggest. Setser obviously thinks so. But it is good to see China putting proposals on the table whose ambition and multilateral orientation are appropriate to the scale of the current crisis. At one level, Zhou seems to be saying “give us some other reserve currency to hold, and the dollar can depreciate as much as it wants.” At another level, there is the proposal to partially pool reserves in the IMF, which would be “more effective in deterring speculation and stabilizing financial markets”. I would be fascinated to hear what people think.
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I’m sure that China, owner of $1trn in T-Bills, would really hate for the US dollar to experience any sort of inflation. It would inconvenience them immensely. They should get on trying to stop it somehow.