Here’s a new Three Minute Macro video on the Triffin Dilemma and why it matters more than ever.
The basic gist of the video is that the reserve currency issuer in the global monetary system has an inherent conflict. The rest of the world needs their currency not only for foreign trade, but for reserve maintenance and commerce since that currency operates as the safest and most widely used currency. But the reserve currency issuer also needs to be vigilant about currency issuance so as to avoid devaluing the currency.
This is especially important today because the USA has an inflation problem so the Fed is tightening monetary policy and the Treasury has tightened fiscal policy. But the USD is surging, in part, because dollar demand is surging because the rest of the world needs dollars. So there’s this strange paradox at work where the rest of the world wants dollars in an increasingly low quality asset world, but the USA doesn’t want to supply them.
How will it all unfold? No one really knows, but the one thing that’s certain is that the Fed’s rate hikes are likely to have unintended consequences that could make things worse, not better.
I hope you enjoy the video and learn something new.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.