Bitcoin may be Zhou Xiaochuan's new attempt to solve Triffin's problem

Rage Review : Although the Triffin Dilemma used to refer mainly to the US dollar, now that the RMB has become part of the SDR , this problem is undoubtedly placed before the People's Bank of China. Governor Zhou Xiaochuan pointed out long ago that the creation of an international reserve currency independent of the country would help solve this long-standing problem. Although this article is only a concept and discussion, there is no doubt that Bitcoin has given our world a great inspiration. A digital currency purely backed by algorithmic credit is the first attempt in human history. Mathematics is the greatest common divisor of the entire human civilization, and the value Internet based on blockchain technology may be a new path that we have never taken but is worth trying.

Although the Federal Reserve's bill (the dollar) has many advantages in trade and as an international reserve currency, its composition is not impeccable.

One of the shortcomings of the dollar is the Triffin dilemma, which is a problem that countries encounter when they manage short-term domestic interests and long-term international economic goals. When a country must meet international currency demands, it will inevitably lead to a trade deficit.

The US dollar cannot escape the Triffin dilemma, but Bitcoin, which is not restricted by any country, may be able to solve this international currency flaw and provide support for the increasingly independent international economy.

Triffin Dilemma

Economist Robert Triffin first raised the issue of international currency, pointing out that using a country's currency as an international reserve currency may lead to a domestic trade deficit in that country.

This kind of currency problem is usually used to describe the problems brought about by the US dollar as an international reserve currency under the Bretton Woods system.

Since other countries want to hold reserve currencies, the country that issues reserve currencies must provide additional currency reserves to the international market to meet international requirements. However, this practice will inevitably lead to a trade deficit for the country.

In March 2009 , in the middle of the latest Great Recession, Zhou Xiaochuan, governor of the People's Bank of China, expressed his dissatisfaction with the existing composition of international reserve currencies.

Zhou Xiaochuan is known for his reformist style. He made it clear that it is necessary to create an "international reserve currency that is independent of any single country." This international reserve currency can provide the world economy with a stable value, rule-based issuance and controllable money supply, thereby achieving a long-term prosperous international finance.

Zhou's proposal did not receive much response, as economists were not sure whether the IMF's Special Drawing Rights (SDR) could replace the US dollar and be accepted by the world. Since then, no one has proposed a new solution.

But has this “independent international reserve currency” been in circulation since 2009? Is it possible for Bitcoin to become an independent supply currency, thus solving the Triffin dilemma ?

John Nash and the Triffin Dilemma

Mathematician John Nash , who is widely credited with creating Bitcoin, also proposed that reforms at the monetary level could solve the Triffin Dilemma. Nash believed that the most desirable goal was to create an international reserve instrument that would be independent of individual countries and stable over the long term, cutting off the flaws of credit-based currencies.

This supply of currency can provide reserves for the country and can be operated anonymously internationally. Nash was fascinated by cryptography and perfect money, and people can see John Nash 's mark on the birth of Bitcoin .

Can Bitcoin Solve the Triffin Dilemma?

The Triffin Dilemma refers to the fact that countries that issue international reserve currencies will use internationally required liquidity to manage their own financial reserves, which will hinder the growth of the international economy. However, can Bitcoin provide a practical answer to the Triffin Dilemma?

If we assume that a currency that can solve the Triffin dilemma should meet the following prerequisites, then Bitcoin fully meets the requirements.

1. Stable value

2. Rules-based issuance

3. Controllable supply schedule

According to the latest Bitcoin price fluctuation analysis report, Eli Dourado estimates that Bitcoin can achieve similar stability to the euro within 15 years. The number of Bitcoin products is growing, driving the growth of the number of active users. The Federal Reserve in Washington believes that the number of Bitcoin users will double every eight months.

Rules-based issuance is perhaps the most interesting aspect of Bitcoin’s economics. Below is an example of a shift in monetary policy management.

Throughout the 20th century, central banking systems and the decisions of their managers were the catalysts for monetary policy, but their role is now being replaced by time-limited issuance algorithms and cryptocurrencies. Computers can calculate the amount of money issued, providing a robust basis for monetary policy because their massive computing power can better adjust in the face of changing externalities.

Finally, compared to traditional forms of money, Bitcoin’s supply schedule is relatively inelastic. We can predict with high accuracy what the supply of Bitcoin will be at a given point in time (past and future), and make necessary adjustments to domestic policy.

Peter Urda , an economist in Vienna, Austria , believes that the inelastic function of Bitcoin supply may shorten the domestic business cycle. This feature of Bitcoin can also help domestic governments and businessmen to predict money supply with higher accuracy, thereby reducing the destructive power of business cycles.

As Bitcoin gains more users, more people learn about cryptocurrencies, transact with cryptocurrencies, and cross the psychological gap of viewing currency as a valid means of payment, Bitcoin moves closer to its position as a world reserve tool. This tool has great potential and can really solve the age-old Triffin Dilemma.