International Monetary Reform Research Articles

Professor Triffin on the problem of international monetary reform

In Professor Tr if fin's opinion, "the basic absurdity of the gold exchange standard is that it makes the international monetary system highly dependent on individual countries' decisions about the continued use of one or a few national currencies as monetary reserves . . . The gold exchange standard may , but does not necessarily , help in relieving a shortage of world monetary reserves. It does so only to the extent that the key currency countries are willing to let their net reserve position decline through increases in their short-term monetary liabilities unmatched by corresponding increases in their own gross reserves. If they allow this to happen, however, and to continue indefinitely, they tend to bring about a collapse of the system itself through the gradual weakening of foreigners' confidence in the key currencies" (p. 67). The key currency countries, and in particular the United States, will not permit such developments to occur. The only alternative, however, is "a substantial slowdown of the contributions to world liquidity derived in the last nine years from the persistent weakening of our net reserve position. The solution of the dollar problem will thus involve a reopening or aggravation of the world liquidity problem" (p. 69). Professor Triffin believes that "the logical solution of this dilemma would lie in the 'internationalization' of the foreign exchange component of monetary reserves" (p. 87), and more concretely, "in the substitution of IMF balances for such national currencies in all member countries' monetary reserves" (pp. 100-101). These balances "should be made equivalent in all respects to gold itself and as widely usable and acceptable in world payments" (p. 102). To correct the inflationary bias of the original Keynes plan, Professor Triffin proposes to limit both the lending capacity of the Fund and the commitment of each member country to accept Fund "bancor" balances in settlement of its surpluses. For the problem of an annual increase in the