Robert Triffin
Encyclopedia
Robert Triffin was a Belgian
economist
best known for his critique of the Bretton Woods system
of fixed currency exchange rate
s. His critique became known later as Triffin's dilemma.
Triffin received his doctorate degree (Ph.D.) from Harvard University
in 1938 and taught there from 1939 until 1942. He held positions in the US Federal Reserve System
(1942–1946), the International Monetary Fund
(1946–1948), and the Organisation for European Economic Co-operation (1948–1951), now the OECD
. In 1951 he became a professor of economics at Yale University
.
Triffin became a U.S. citizen in 1942. He reclaimed his Belgian citizenship in 1977 and returned to reside in Europe. There he was a staunch supporter of European integration
and helped to develop the European Monetary System
and supported the concept of a central bank, which developed as the European Central Bank
.
warning of serious flaws in the Bretton Woods system. His theory was based on observing the dollar glut
, or the accumulation of the United States dollar
outside of the US. Under the Bretton Woods
agreement the US. had pledged to convert dollars into gold
, but by the early 1960s the glut had caused more dollars to be available outside the US than gold was in its Treasury. As a result the US had to run deficits on the current account of the balance of payments
to supply the world with dollar reserves that kept liquidity for their increased wealth. However, running the deficit on the current account of the balance of payments in the long term would erode confidence in the dollar. He predicted the result that the system would not maintain both liquidity and confidence, a theory later to be known as the Triffin dilemma
. It was largely ignored until 1971, when his hypothesis
became reality, forcing US President Richard Nixon
to halt convertibility of the United States dollar into gold
, an event with consequences known as the Nixon Shock
). It effectively ended the Bretton Woods System.
Belgium
Belgium , officially the Kingdom of Belgium, is a federal state in Western Europe. It is a founding member of the European Union and hosts the EU's headquarters, and those of several other major international organisations such as NATO.Belgium is also a member of, or affiliated to, many...
economist
Economist
An economist is a professional in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy...
best known for his critique of the Bretton Woods system
Bretton Woods system
The Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states in the mid 20th century...
of fixed currency exchange rate
Exchange rate
In finance, an exchange rate between two currencies is the rate at which one currency will be exchanged for another. It is also regarded as the value of one country’s currency in terms of another currency...
s. His critique became known later as Triffin's dilemma.
Triffin received his doctorate degree (Ph.D.) from Harvard University
Harvard University
Harvard University is a private Ivy League university located in Cambridge, Massachusetts, United States, established in 1636 by the Massachusetts legislature. Harvard is the oldest institution of higher learning in the United States and the first corporation chartered in the country...
in 1938 and taught there from 1939 until 1942. He held positions in the US Federal Reserve System
Federal Reserve System
The Federal Reserve System is the central banking system of the United States. It was created on December 23, 1913 with the enactment of the Federal Reserve Act, largely in response to a series of financial panics, particularly a severe panic in 1907...
(1942–1946), the International Monetary Fund
International Monetary Fund
The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...
(1946–1948), and the Organisation for European Economic Co-operation (1948–1951), now the OECD
Organisation for Economic Co-operation and Development
The Organisation for Economic Co-operation and Development is an international economic organisation of 34 countries founded in 1961 to stimulate economic progress and world trade...
. In 1951 he became a professor of economics at Yale University
Yale University
Yale University is a private, Ivy League university located in New Haven, Connecticut, United States. Founded in 1701 in the Colony of Connecticut, the university is the third-oldest institution of higher education in the United States...
.
Triffin became a U.S. citizen in 1942. He reclaimed his Belgian citizenship in 1977 and returned to reside in Europe. There he was a staunch supporter of European integration
European integration
European integration is the process of industrial, political, legal, economic integration of states wholly or partially in Europe...
and helped to develop the European Monetary System
European Monetary System
There are three stages of monetary cooperation in the European Union.-Background:European currency exchange rate stability has been one of the most important objectives of European policy makers at least since the Second World War....
and supported the concept of a central bank, which developed as the European Central Bank
European Central Bank
The European Central Bank is the institution of the European Union that administers the monetary policy of the 17 EU Eurozone member states. It is thus one of the world's most important central banks. The bank was established by the Treaty of Amsterdam in 1998, and is headquartered in Frankfurt,...
.
Bretton Woods critique
In 1960 Triffin testified before the United States CongressUnited States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
warning of serious flaws in the Bretton Woods system. His theory was based on observing the dollar glut
Dollar glut
The dollar glut is a term for the accumulation of United States dollars outside of the United States, contrasted with the dollar gap that lead to the creation of the Marshall Plan following World War II...
, or the accumulation of the United States dollar
United States dollar
The United States dollar , also referred to as the American dollar, is the official currency of the United States of America. It is divided into 100 smaller units called cents or pennies....
outside of the US. Under the Bretton Woods
Bretton Woods system
The Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states in the mid 20th century...
agreement the US. had pledged to convert dollars into gold
Gold
Gold is a chemical element with the symbol Au and an atomic number of 79. Gold is a dense, soft, shiny, malleable and ductile metal. Pure gold has a bright yellow color and luster traditionally considered attractive, which it maintains without oxidizing in air or water. Chemically, gold is a...
, but by the early 1960s the glut had caused more dollars to be available outside the US than gold was in its Treasury. As a result the US had to run deficits on the current account of the balance of payments
Balance of payments
Balance of payments accounts are an accounting record of all monetary transactions between a country and the rest of the world.These transactions include payments for the country's exports and imports of goods, services, financial capital, and financial transfers...
to supply the world with dollar reserves that kept liquidity for their increased wealth. However, running the deficit on the current account of the balance of payments in the long term would erode confidence in the dollar. He predicted the result that the system would not maintain both liquidity and confidence, a theory later to be known as the Triffin dilemma
Triffin dilemma
The Triffin dilemma is a theory that when a national currency also serves as an international reserve currency, there could be conflicts of interest between short-term domestic and long-term international economic objectives...
. It was largely ignored until 1971, when his hypothesis
Hypothesis
A hypothesis is a proposed explanation for a phenomenon. The term derives from the Greek, ὑποτιθέναι – hypotithenai meaning "to put under" or "to suppose". For a hypothesis to be put forward as a scientific hypothesis, the scientific method requires that one can test it...
became reality, forcing US President Richard Nixon
Richard Nixon
Richard Milhous Nixon was the 37th President of the United States, serving from 1969 to 1974. The only president to resign the office, Nixon had previously served as a US representative and senator from California and as the 36th Vice President of the United States from 1953 to 1961 under...
to halt convertibility of the United States dollar into gold
Gold
Gold is a chemical element with the symbol Au and an atomic number of 79. Gold is a dense, soft, shiny, malleable and ductile metal. Pure gold has a bright yellow color and luster traditionally considered attractive, which it maintains without oxidizing in air or water. Chemically, gold is a...
, an event with consequences known as the Nixon Shock
Nixon Shock
The Nixon Shock was a series of economic measures taken by U.S. President Richard Nixon in 1971 including unilaterally cancelling the direct convertibility of the United States dollar to gold that essentially ended the existing Bretton Woods system of international financial exchange.-Background:By...
). It effectively ended the Bretton Woods System.