Triffin's dilemma is that the US dollar is linked to gold, while other countries' currencies are linked to the US dollar. Although the US dollar has gained the status of the international core currency, in order to develop international trade, countries must use the US dollar as the settlement and reserve currency. This will lead to the continuous precipitation of money flowing out of the United States overseas, for example, there will be a long-term deficit.

The premise of the US dollar as the core of the international currency is to keep the value of the US dollar stable, which requires the United States to maintain a long-term balance of international trade surplus. These two requirements are contradictory, so it is a paradox. This internal contradiction is called Triffin Dilemma.

in 195s, after studying the Bretton Woods system, American economist rob terry Finn pointed out that if there was no other reserve currency to supplement/replace the US dollar, the parity system centered on the US dollar would collapse, because in this system, the US dollar assumed a contradictory dual function:

(1) providing liquidity for world economic growth and international trade development.

(2) Maintain the currency credit of the US dollar, and maintain the currency credit of the US dollar. Exchange rate with gold. In order to meet the demand of countries for US dollar reserves, the United States can only provide US dollars in the form of external liabilities, that is, a persistent balance of payments deficit, which will lead to excessive international liquidity and the depreciation of the US dollar (dollar disaster) and the inability to maintain the official price of gold.

if we want to ensure the stability of the dollar value, the United States will not be able to maintain the official price of gold. Countries must maintain a balance of payments surplus, which will lead to a shortage of dollars and a lack of international means of settlement (dollar shortage). This dilemma of the US dollar under the Bretton Woods system is the famous Triffin Dilemma. The subsequent historical development proved the foresight of Professor triffin.

Extended information:

On the eve of the end of World War II, the Bretton Woods Conference held in the United States in 1944 formulated the agreement of the international monetary fund, which established the parity (fixed exchange rate) system between the US dollar and gold and other currencies linked to the US dollar, in which the US dollar was the main source and support of international reserves.

this framework has played a positive role in restoring the postwar economy and alleviating the shortage of international gold reserves and solvency, but it also has inherent defects.

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