Triffin Dilemma and International Monetary System : Evidence from Pooled Mean-Group Estimation

This study utilizes the panel data set of four major international currencies, USD, JPY, EUR and GBP from 1973 to 2013 with Pooled Mean-Group (PMG) estimator, to re-examine whether Triffin dilemma still exists through investigating the relationship between the reserve share, current account balance and real effective exchange rate. The evidence from the result indicates that Triffin dilemma exists only in the long run, and shows that in the long-run, current account balance is proportionate to the increased real effective exchange rate while varies inversely with the reserve shares. However, the estimation for the short-run is not significant to prove the existence of Triffin dilemma. In addition, we investigated the non-dollar panel sample and found that the international monetary system still suffers from Triffin dilemma even without the dollar. To overcome Triffin dilemma, three steps are suggested to be taken and in the longer time, a supranational currency is used to replace all the currencies in the world.