Crypto Could Solve “Triffin Dilemma”

The Triffin Dilemma is a conflict of interest between national and global monetary policy for a country whose currency is used as the world’s reserve. Currently, the currency used as the world’s reserve is the U.S. dollar and it has been this way for decades. For the U.S. to maintain its role, it must incur a trade deficit.

Cryptocurrency could be the solution, at least according to an economist at the Federalist Reserve Bank of St. Louis. The bank held a question-and-answer session and economist David Andolfatto, who is also VP of the bank’s research division, answered the questions. When asked about the Triffin Dilemma, Andolfatto responded:

“The Triffin Dilemma refers to the double-edged sword of possessing a currency that serves as the world reserve currency. If a private cryptocurrency were to replace a given world reserve currency, this would eliminate the dilemma for that currency.”

Users asked other questions, such as whether Andolfatto thought crypto could replace the U.S. dollar and whether the Federal Reserve is likely to consider a monetary policy for cryptocurrency.

Andolfatto responded that cryptocurrency is private money and as a result, it does not fall under the purview of the central bank. Further, given that there is no “need for decentralized consensus based record keeping” concerning the dollar, he does not believe that it will be replaced with cryptocurrency. He added that the demand for crypto is supplanting demand for existing reserve currencies.

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