forbes.com / By Nathan Lewis / January 18, 2013
One of the strangest things about “Triffin’s Dilemma” is not that Robert Triffin said something in the mid-1960s, but rather that people still take this stuff seriously a half-century later. It’s basically nonsense. But, it seems that, in fifty years, nobody has appeared to call a spade a spade. It just shows the very low level of understanding that has characterized these issues for over half a century.
For the last hundred and fifty years, some countries have operated gold standard systems using a “reserve currency” as a reserve asset. In practice, they don’t actually hold the currency – base money – but rather government bonds denominated in that currency. Before 1914, this was mostly British government bonds, and after 1944 it was U.S. Treasury bonds.
There is nothing particularly strange about this. Since 1700, and indeed earlier, banks operating a gold standard system have generally held some form of debt as a reserve asset. There isn’t really much difference between holding the gold-linked debt of the domestic government or the gold-linked debt of a foreign government.