The Danger of the Trilemma for the International Monetary System

Patrick Artus Directeur de la recherche et des études, Natixis
Cristina PEICUTI Adjoint au responsable de la recherche économique, Natixis, groupe BPCE ; maître de conférences, Université Paris 13. Contact :

The famous impossible trilemma is well known: only two out of these three objectives can be achieved: fixed exchange rates, absence of capital controls and the possibility of having an independent monetary policy. Central banks have themselves rendered the choice of the impossible trilemma unsustainable because of the resulting instability of exchange rates.

But a return to fixed exchange rates is also impossible, as they would also be destabilised by large-scale speculative capital flows. What alternative should be taken into consideration ?

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