What is the Triffin paradox quizlet?
triffin paradox. The concept that a national currency that is also a reserve currency will eventually run a deficit, which eventually inspires a lack of confidence in the reserve currency and leads to a financial crisis.
What does Triffin mean?
The Triffin dilemma or Triffin paradox is the conflict of economic interests that arises between short-term domestic and long-term international objectives for countries whose currencies serve as global reserve currencies.
How does the Triffin dilemma affect currencies?
Robert Triffin believed the dollar could not survive as the world’s reserve currency without requiring the United States to run ever-growing deficits. A popular reserve currency lifts its exchange rate, which hurts the currency-issuing country’s exports, leading to a trade deficit.
What is the Triffin dilemma and why is it important?
Triffin’s Dilemma If the United States stopped running balance of payments deficits, the international community would lose its largest source of additions to reserves. The resulting shortage of liquidity could pull the world economy into a contractionary spiral, leading to instability.
What was the Nixon shock 1971?
Nixon Shock is a phrase used to describe the aftereffect of a set of economic policies touted by former President Richard Nixon in 1971. Most notably, the policies eventually led to the collapse of the Bretton Woods system of fixed exchange rates that went into effect after World War II.
What has been the most used central reserve asset in the world since the end of World War II?
Every member of the IMF keeps a reserve account (savings account). US dollar has been the most used central reserve asset in the world since the end of World Wat II. Roughly 60% of the world reserves are in the dollar.
Why did Bretton Woods fail?
A key reason for Bretton Woods’ collapse was the inflationary monetary policy that was inappropriate for the key currency country of the system. The Bretton Woods system was based on rules, the most important of which was to follow monetary and fiscal policies consistent with the official peg.
How does the petrodollar work?
Petrodollars are U.S. dollars paid to an oil-exporting country for the sale of the commodity. Put simply, the petrodollar system is an exchange of oil for U.S. dollars between countries that buy oil and those that produce it. It helped increase the stability of oil prices denominated in U.S. dollars.
What are the advantages and disadvantages of gold standard?
The advantages of the gold standard are that (1) it limits the power of governments or banks to cause price inflation by excessive issue of paper currency, although there is evidence that even before World War I monetary authorities did not contract the supply of money when the country incurred a gold outflow, and (2) …
How did Nixon help the economy quizlet?
How did Nixon try to help the economy? He imposed wage-price controls, which were not successful, and attempted to gain better management of government financial programs. It made Americans have a lot of mistrust in the government and lose faith in the presidency.
What is the most stable currency in the world?
Swiss Franc (CHF) With a currency rate of 1.08 USD and 0.91 euros, it is one of the most stable currencies in the world. Besides Switzerland, the Swiss franc stands for the official currency of Liechtenstein.
Why is it called Bretton Woods?
Established in 1944 and named after the New Hampshire town where the agreements were drawn up, the Bretton Woods system created an international basis for exchanging one currency for another. Nations also agreed to buy and sell U.S. dollars to keep their currencies within 1% of the fixed rate.
Why can you only buy oil in dollars?
The dollar is the preeminent global currency. As a result, most international transactions, including oil, are priced in dollars. Oil-exporting nations receive dollars for their exports, not their own currency. As a result, most of these oil exporters also peg their currencies to the dollar.
What did Nixon do for the economy?
Nixon issued Executive Order 11615 (pursuant to the Economic Stabilization Act of 1970), imposing a 90-day freeze on wages and prices in order to counter inflation. This was the first time the U.S. government had enacted wage and price controls since World War II.