Christian Ghymers
The systemic instability of ballooning Global Liquidity as a symptom of the worsening of the Triffin Dilemma
Robert Triffin International - Centro Studi sul Federalismo, November 2021

The purpose of this paper is to draw attention to the link (still neglected by economists and policymakers) between the fragility of the liquidity situation and the Triffin Dilemma through the corollary of the “built-in destabiliser” . Indeed, the changes in the financial markets that explain most of the GL expansion have exacerbated the inner pro-cyclical character of financial markets by amplifying the endogenous reversibility of the creation of GL due to the narrowing of the ultimate availability of safe assets in US dollars, on which the inverted pyramid of GL is based, thus creating additional destabilising effects on the financial cycle. A common feature of this recurrent instability of GL and the IMS based on the dollar as the main reserve currency is the absence of a multilateral Lender-of-Last-Resort (LOLR) capable of regulating GL by issuing the optimal quantity of “safe assets” without causing geopolitical policy conflict or asymmetries, because a multilateral safe asset is not, by definition, a debt of any national economy but of the global system.

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