Although the United States Federal Reserve Note carries with it many advantages for conducting commerce and serving as a world reserve currency, its makeup is not void of imperfections.

1. teamsteverhyner.com http://www.teamsteverhyner.com/why-bitcoin-may-solve-this-age-old-economic-paradox/
Steven L.
Rhyner
Why Bitcoin May Solve This Age-Old Economic Paradox
Although the United States Federal Reserve Note carries with it many advantages for conducting commerce and
serving as a world reserve currency, its makeup is not void of imperfections.
One of the main shortcomings of the US dollar is the Triffin dilemma, a problem which arises when countries must
manage both short term domestic and long term international economic objectives.
Such a dilemma can lead to trade deficits when a country must also satisfy international demand of its currency.
Where the dollar falls victim to the Triffin dilemma, however, the stateless characteristics of bitcoin may hold promise
to solve this international monetary flaw, and provide the backbone for a more interdependent global economy.
The Triffin dilemma
The economist Robert Triffin
first brought to light an
international monetary issue
involving the nation holding reserve currency status and the impact such a role would have on domestic trade deficits.

2. Such a currency arrangement is usually cited to articulate the problems with the role of the dollar as the reserve
currency under the Bretton Woods system.
The countries issuing a reserve currency, which foreign nations would wish to hold, must be willing to supply extra
money stock to fulfill global demand. Such an arrangement would inevitably lead to operating a trade deficit.
In March of 2009, in the midst of the recent Great Recession, the People’s Bank of China Governor Zhou Xiaochuan
voiced his displeasure of the current makeup of the world reserve currency.
Known for his reformist tendencies, Xiaochuan made clear the need for creating “an international reserve currency
that is disconnected from individual nations”. Such an international reserve currency, he insisted, could provide stable
value, rule-based issuance, and manageable supply necessary for achieving prolonged financial prosperity.
Zhou Xiaochuan’s proposal went largely unheard, as economists were not clear if the International Monetary
Fund’s Special Drawing Rights (SDR) had the global adoption to overtake the dollar. No solutions have since been
proposed.
Yet is it possible that such a “disconnected international reserve currency” has been in circulation since 2009? Is it
possible that bitcoin could act as a domestically disconnected money supply and therefore solve the Triffin Dilemma?
John Nash on the Triffin Dilemma
The late mathematician John Nash, whom some believe to be a contributor to the invention of bitcoin, was also an
advocate of monetary reform in order to solve the Triffin Dilemma.
The desirable goal, in Nash’s mind, was to create an international reserve instrument capable of operating
independent of individual nation states while remaining stable in the long run, severing deficiencies found in credit-
based money.
Such a money supply would be able to provide a national savings outlet while operating in an autonomous, global
manner. With an obsessive focus on cryptography and ideal money, the introduction of bitcoin is covered with the
fingerprints of John Nash.
Can Bitcoin Solve the Triffin Dilemma?
The Triffin Dilemma, where countries issuing reserve currencies attempt to simultaneously manage national savings
levels with necessary international liquidity, continues to act as a barrier to economic growth. However, could it be
that the introduction of bitcoin brings forth a viable solution to the Triffin Dilemma?
If we assume that the prerequisites for a currency capable of solving the Triffin dilemma were to provide the following,
it may be possible to argue that bitcoin is the perfect fit.
1. Stable value
2. Rule-based issuance
3. Manageable supply schedule
In a recent analysis of the price volatility of bitcoin, Eli Dourado estimates that the stability of bitcoin could match that
of the Euro within 15 years. Largely a product of an increasing number of active users, the Federal Reserve Board of
Washington also estimates that the userbase of bitcoin is doubling roughly every eight months.
Rule-based issuance is perhaps the most interesting aspect of the bitcoin economy. Here, we have a paradigm shift
in the management of monetary policy.

3. Where central banking and human decision making were the catalysts for monetary policy in the 20th century, that
role is now filled by algorithmic time-bound issuance with cryptocurrency. A computerized function on the issuance of
money has the potential to provide a sound basis for monetary policy because it is magnitudes more capable of
adjusting to changing externalities, such as the bitcoin mining hash power index.
Finally, the supply schedule of bitcoin is relatively inelastic compared to traditional forms of money. We can predict
with a high degree of accuracy the supply of bitcoin at any point in time (past & future) and make the necessary
adjustments in domestic policy.
Peter Šurda, an economist from Vienna, Austria, argues that the inelastic supply function of bitcoin could result in a
reduction of business cycles on a domestic level. This inelastic function of bitcoin’s monetary supply could allow both
domestic governments and businesses to forecast changes with a higher degree of accuracy, and therefore, could
quite possibly mitigate the destructive nature of the business cycle .
Truly, as bitcoin gains new users in the form of individuals learning about cryptocurrency, transacting it, and crossing
the psychological chasm of viewing it as a valid form of payment, it inches closer to its rightful place as a global
reserve instrument. Such an instrument would hold tremendous potential to solve the age-old Triffin dilemma.
Businessman dilemma via Shutterstock
Re-posted from www.coindesk.com December December 20, 2015 Opinion by Travis Patron
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