Robert Triffin and 80 years after Bretton Woods

Luís Máximo dos Santos, Governor of Bank of Mexico pays tribute to Robert Triffin:

My first contact with Robert Triffin’s line of thought was at the University of Lisbon School of Law as a student of Professor Paulo de Pitta e Cunha, his great admirer and promoter in Portugal.

The work of this economist is truly remarkable in many respects. Born in Belgium, claiming the Catholic University of Leuven as his alma mater, he would later acquire U.S. citizenship. He reflected with rare clarity on monetary problems, most particularly on the problems of the international monetary system emerging from the Bretton Woods Conference: the gold-dollar standard. 

His two major works – Europe and the Money Muddle (1957) and Gold and the Dollar Crisis (1960) – brought him worldwide acclaim through his formulation of the so-called ‘Triffin Dilemma’. He held and predicted (also testifying before the US Congress), with millimetric accuracy, that the Bretton Woods international monetary system would collapse. This came to be in August 1971, when President Nixon announced what he then called the ‘suspension’ of the convertibility of the dollar into gold which, in fact, was already limited to central banks only. 

Basically, Robert Triffin identified an insurmountable contradiction in the Bretton Woods system: to ensure the adequate supply of dollars to the world economy needed to expand trade, the United States would have to run successive balance of payments deficits. This would lead other countries to accumulate such high levels of dollar reserves that, in the face of a request for conversion, there would be legitimate doubt as to whether the United States Government would be able to honour it. The mere emergence of that doubt ultimately called into question the key component of the monetary system: the convertibility of the dollar into gold. And that was precisely what happened. 

To overcome this contradiction, Robert Triffin proposed the creation of an international reserve asset under the control of the International Monetary Fund. His reasoning thus influenced the IMF’s creation of Special Drawing Rights in 1969. However, this initiative fell far short of the expectations of many about the role that this asset could play in the international monetary system. His reasoning was also very important with regard to the challenges posed by regional monetary cooperation, particularly in Europe.