For those who want to understand today's currency system and why I believe that the USD is on it's way out (just not very rapidly until the very end), here's a good write up:
The most common version of Triffin shifts his thesis from the capital account to the current account. It posits that the reserve currency country must run, or at least does run, persistent current account deficits to provide the rest of the world with reserves denominated in its currency (Zhou (2009), Camdessus and Icard (2011), Paul Volcker in Feldstein (2013), Prasad (2013)). “In doing so, it becomes more indebted to foreigners until the risk-free asset ceases to be risk-free” (Financial Times Lexicon (no date)).
[…]
As applied to the United States, the current account version of Triffin runs as follows. The global accumulation of dollar reserves requires the United States to run a current account deficit. Since desired reserves rise with world nominal GDP, which is growing faster than US nominal GDP, the growth of dollar reserves will raise US external indebtedness unsustainably. Either the United States will not run the current account deficits, leading to an insufficiency of global reserves. Or US indebtedness will rise without limit, undermining the value of the dollar and the reserves denominated in it.
Then in the end, the paper concludes:
While there is much to argue with Triffin and those who invoke his dilemma, there is no arguing the dilemmas posed by a national currency that is used globally as store of value, unit of account and means of payment. “The reserve currency is a global public good, provided by a single country, the US on the basis of domestic needs” (Campanella (2010)). Padoa-Schioppa emphasises the awkwardness of national control from a global perspective. But the global use of the dollar can pose dilemmas to the United States. How should the Federal Reserve respond to instability in the markets for $10.7 trillion in dollar debt of nonbanks outside the United States or in a like amount of forward contracts requiring dollar payments?The central bank ignores such instability at the peril of possible turmoil in US dollar markets that does not stop at the border – even if the floating rate index for dollar debts is brought back from London to New York. Yet the Federal Reserve responds to such instability at the peril of seeming to overreach its mandate.
Issues arising from one country’s supplying most of the world’s reserve currency are not going away.
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