Why is it a dilemma?
Under Bretton Woods, the dollar was pegged to gold at $35 an ounce. As world trade grew, other countries needed more dollars, which meant the US had to run deficits and send dollars abroad. But once foreign-held dollars far exceeded US gold reserves, confidence that they could be redeemed eroded. Stop the deficits and the world runs short of liquidity; keep running them and trust collapses. Triffin warned Congress about this in 1960.
Is it still relevant today?
Gold drained away until President Nixon closed the gold window in 1971, ending Bretton Woods. The dollar remained the reserve currency anyway, giving the US an 'exorbitant privilege' of cheap borrowing (Eichengreen, 2011). Persistent US deficits and debates over dollar confidence are still framed as a modern Triffin dilemma, motivating ideas like the IMF's SDR and exchange-rate reform.
FAQ
- How does it affect emerging markets?
- Countries that stockpile dollar reserves help finance US deficits, part of the same dynamic.
- Is there a solution?
- Keynes's 'bancor' and the IMF's SDR are proposals for a supranational reserve asset.
Sources reviewed: 2026-10-25
References
- Triffin, R. (1960). Gold and the dollar crisis. Yale University Press.
- Eichengreen, B. (2011). Exorbitant privilege. Oxford University Press.