Fixing the Triffin Dilemma: The True Price of the Dollar

Every reserve currency in history has collapsed under the same mathematical problem. But we can solve it.

America’s trade deficits aren’t a policy failure—they’re a structural feature of the global monetary system. Since 1971, when the last vestiges of the gold standard collapsed, the United States has run persistent deficits not by accident but by design. This economic architecture, while rarely acknowledged in public debate, shapes everything from manufacturing employment to interest rates. Only by recognizing these structural forces can we begin to address the long-term consequences they create.

The Bretton Woods Legacy Nobody Wants to Discuss

In 1944, as World War II came to an end, America held all the cards. We possessed half the world's industrial capacity, most of its gold, and the only major navy and air force still intact after years of global conflict. From this position of unprecedented strength, America could have dominated the globe through force or exploitation. Instead, we built something different: a system which would facilitate postwar reconstruction, integrate allied economies, and expand global production through comparative advantage. Critically, America would provide the global liquidity necessary to kickstart trade and investment, preventing the catastrophic economic nationalism that had deepened the Great Depression and even contributed to the causes of the Second World War.

In that moment, America faced a choice: negotiate lending terms to maximize long-term financial advantage, or prioritize rapid global recovery through strategically permissive terms. The U.S. deliberately chose the latter, opening its markets and exporting capital despite recognizing this would inevitably culminate in domestic economic challenges. This prioritization of global recovery and stability over America’s narrow financial interests jump-started the world economy at a cost willingly absorbed by the United States—a tradeoff deemed necessary for both geopolitical security and long-term global prosperity.

But even during this height of the peace dividend, an unsustainable cost was paradoxically being paid. In 1960, economist Robert Triffin identified the dilemma that now bears his name: to supply the dollars the world economy needed for reserves and trade, the United States would be required to run persistent deficits, always sending more dollars abroad than it received back in trade. Yet those same deficits, if continued indefinitely, would eventually undermine confidence in the dollar itself—as more dollars circulated globally than America had assets to back them.

This “Triffin Dilemma” initially manifested as pressure on America’s gold reserves. By 1971, facing the impossible choice between defending the dollar’s gold parity and maintaining global liquidity, President Nixon closed the gold window, and kept the dollars flowing to the world. The dollar became a pure fiat currency, backed only by the full faith and credit of the United States of America—and its taxpayers. Still, the world depended on dollars for commerce and stability, so its reserve status persisted—and with it, the structural imperative for ongoing American deficits that continues to this day.

The Circular Logic of Our Current Predicament

The consequences of this arrangement have become increasingly problematic. Countries like China, Germany, and Japan have built powerful domestic economies predicated on running trade surpluses against the United States. They sell far more to America than they buy, accumulate dollar reserves, and then invest those dollars back into U.S. Treasury bonds—effectively having Americans pay interest on the very dollars we already spent into their economies to begin with.

This circularity—sell to America, accumulate dollars, lend those dollars back to the American government, earning interest from American taxpayers—creates an unsustainable cycle. The United States runs larger and larger trade deficits, borrowing more and more from the very countries that benefit most from the imbalance. Meanwhile, domestic manufacturing hollows out, financial markets distort, and an ever-growing portion of our tax revenue is diverted to servicing foreign-held debt which funds their infrastructure, education, healthcare, and other domestic needs, instead of our own.

Doomed to Failure

The current system faces two existential problems that no amount of economic wishful thinking can resolve.

First, debt math is unforgiving. Our national debt now exceeds our entire economy, with interest payments consuming over $1 trillion annually—more than we spend on defense. When you're borrowing money to pay interest on money you've already borrowed, you're not managing debt anymore. You've lost the plot.

Second, the geopolitical foundation supporting dollar hegemony has eroded dramatically. In 1971, America represented 35% of global GDP. Today it's closer to 25% and falling. Meanwhile, China has built a massive economy specifically engineered to capture dollars through trade surpluses. They're not just competing in our system anymore—they're systematically dismantling the conditions that made it workable.

This system is inherently unstable not just for America, but for the world. No country, not even the United States, can run perpetual deficits without eventual consequences. Yet an abrupt unwinding or crisis of confidence would prove catastrophic for the entire global economy dependent on dollar liquidity for trade, investment, and financial stability. Our trading partners and creditors have as much interest in a sustainable model as we do—perhaps even more, given their economic structures fundamentally depend on the global market architecture that America uniquely enables. The dollar system isn’t merely a currency arrangement; it’s the critical operating environment that makes modern global commerce possible, lifting billions out of poverty in the process.

The Trade-Surplus Adjustment Mechanism (TSAM)

The solution to the Triffin Dilemma isn't complex in concept, though it represents a fundamental shift in how we think about international finance. Any country running a trade surplus with the United States would be required to purchase Treasury bonds equal to that surplus—but at a modest negative interest rate, perhaps -0.25%.

Think of it as a stability fee for participating in the global dollar system. Countries can run whatever surpluses they want, but they pay a small premium for the privilege rather than earning interest on America's structural necessity to provide global liquidity. Instead of America paying interest on dollars already spent abroad, surplus countries pay a modest fee for access to the most liquid, stable financial system in history.

The mechanism could function through existing Treasury operations and central bank channels. No new bureaucracies, no trade wars, no disruption to commerce. And though getting agreement would take real diplomatic work¹—we already negotiate everything from access to our markets to access to our F-35s. We can’t negotiate access to our own money? We’re not without leverage. This is just pricing what we currently give away for free—in recognition that global monetary infrastructure has real costs that should be shared rather than borne entirely by American taxpayers.

The Beauty of Market-Driven Coordination

Best of all, TSAM doesn't override market signals—it creates them. Countries facing negative yields on surplus dollars would naturally seek to reduce those surpluses through increased imports or domestic consumption. The mechanism becomes automatically counter-cyclical and globally re-balancing, encouraging economies toward healthy trade without disrupting markets.

Our trading partners shouldn't just accept this proposal—they should embrace it. Without a managed rebalancing, we risk repeating the economic nationalism, currency wars, and trade collapse that characterized the 1930s—forces that ultimately contributed to global conflict. A dollar crisis wouldn’t simply mean ‘disorderly markets’; it would trigger cascading sovereign debt crises, collapse export-dependent economies, destroy global supply chains, and potentially plunge the world into a depression that would make 2008 look trivial by comparison. The modest cost of this adjustment mechanism represents not just prudent insurance but an essential investment in preventing economic catastrophe. We created Bretton Woods precisely to avoid these outcomes—TSAM offers a chance to preserve its core stabilizing function while fixing its fundamental imbalance.

The Triffin Dilemma isn't an academic curiosity—it's the central challenge of international economics. Any currency seeking to replace the dollar would inevitably face the same mathematical reality, while the switching costs—rebuilding global payment systems, redenominating trillions in contracts, establishing new financial infrastructure—would be enormous. Countries remain in the dollar system not because it's free, but because alternatives would be prohibitively expensive and ultimately reproduce the same structural flaws. TSAM offers something better: a mechanism that benefits all participants while solving the fundamental problem.

Doing Nothing Isn't an Option

For fifty years, we've pretended that America can run infinite deficits without consequences while our trading partners accumulate infinite surpluses without responsibility. The math was always impossible, even if the geopolitical arrangement made it temporarily workable.

Those conditions no longer exist. The choice isn't between maintaining the current system and implementing TSAM—it's between managed evolution and chaotic collapse.

The dollar isn't just America's currency. It's the operating system for global commerce. Like any critical infrastructure, it requires maintenance and occasional upgrades to remain functional. TSAM represents exactly this kind of necessary evolution.

The alternative isn't pretty. History shows what happens when reserve currency systems collapse without replacement: economic collapse, trade wars, and military conflict that nobody wants to repeat.

We built the current system to prevent those outcomes. Now we need to fix it for the same reason.

1. Understatement of the Year Award.