The issuer of the global reserve currency must run deficits to supply it, which erodes confidence in it.
Triffin's 1960 warning about the dollar, which anticipated the collapse of Bretton Woods in 1971. The dilemma persists: reserve supply requires deficits, and deficits erode the confidence reserves depend on.
In practice
- A country whose currency everyone wants to hold must send more of it abroad than it takes back, and the deficit it is criticised for is the mechanism supplying the reserves.
- A firm whose vouchers circulate as local money must keep issuing them for the system to work, and every issue is a claim on stock it has not sold.
- Further reading
- Wikipedia
- Subject
- Economics & Incentives
- Essay
- Rules for choosing, and the paradoxes that humbled the theory