Possibility of A Dilemma
In the modern world, given the growth of trade in goods and services and the fast pace of financial innovation, it is possible that capital controls can often be evaded. In addition, capital controls introduce numerous distortions. Hence, there are few important countries with an effective system of capital controls, though by early 2010 there has been a movement among economists, policy makers and the International Monetary Fund back in favour of limited use. Lacking effective control on the free movement of capital, the Impossible Trinity asserts that a country has to choose between reducing currency volatility and running a stabilising monetary policy: it cannot do both. As stated by Paul Krugman in 1999:
| “ | The point is that you can't have it all: A country must pick two out of three. It can fix its exchange rate without emasculating its central bank, but only by maintaining controls on capital flows (like China today); it can leave capital movement free but retain monetary autonomy, but only by letting the exchange rate fluctuate (like Britain – or Canada); or it can choose to leave capital free and stabilize the currency, but only by abandoning any ability to adjust interest rates to fight inflation or recession (like Argentina today,). | ” |
Read more about this topic: Impossible Trinity
Famous quotes containing the words possibility of, possibility and/or dilemma:
“Perhaps basketball and poetry have just a few things in common, but the most important is the possibility of transcendence. The opposite is labor. In writing, every writer knows when he or she is laboring to achieve an effect. You want to get from here to there, but find yourself willing it, forcing it. The equivalent in basketball is aiming your shot, a kind of strained and usually ineffective purposefulness. What you want is to be in some kind of flow, each next moment a discovery.”
—Stephen Dunn (b. 1939)
“It is by far the most elegant worship, hardly excepting the Greek mythology. What with incense, pictures, statues, altars, shrines, relics, and the real presence, confession, absolution,—there is something sensible to grasp at. Besides, it leaves no possibility of doubt; for those who swallow their Deity, really and truly, in transubstantiation, can hardly find any thing else otherwise than easy of digestion.”
—George Gordon Noel Byron (1788–1824)
“Books of natural history aim commonly to be hasty schedules, or inventories of God’s property, by some clerk. They do not in the least teach the divine view of nature, but the popular view, or rather the popular method of studying nature, and make haste to conduct the persevering pupil only into that dilemma where the professors always dwell.”
—Henry David Thoreau (1817–1862)