The Triffin Dilemma | The Twilight of Gold Series | Episode 15 (WiM364)
Sep 11, 2023
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Lester, a fellow student of money, joins the host to discuss various topics including the role of money in personal relationships, the intelligence of the market, ownership and central banks, the mythologies of gold shortages, the potential impact of Bitcoin adoption, and the failure of the financial system.
Managing prices destroys the price discovery process and central banks may not always be successful in their attempts.
Open communication about money is crucial in relationships to avoid misunderstandings and resentment.
The credibility of central banks, like the Bank of England, is vital in maintaining a successful gold standard.
Deep dives
The Challenge of Managing Prices and the Role of Central Banks
The speaker discusses the challenge of managing prices and the role of central banks. They argue that trying to manage prices is inherently deceptive and destroys the price discovery process. The assumption that central banks have always been successful and will continue to be is challenged. The speaker cites a quote that highlights the undervalued asset of a history book.
The Emotional Aspect of Money in Relationships
The podcast episode explores the emotional aspect of money in relationships. The speaker shares a personal story about how money played a role in their past relationship, discussing the importance of open communication and aligning expectations around finances. They emphasize the need for couples to have conversations about money to avoid misunderstandings and potential resentment.
The Bullion Standard and Central Bank Coordination
The podcast delves into the concept of the bullion standard and the coordination among central banks. It highlights a letter from Montague Norman, the governor of the Bank of England, discussing the concentration of gold reserves in each central bank and the intention to limit the use of monetary gold. The discussion touches on the challenges and complexities of managing the international monetary system, with a focus on convertibility, autonomy, and the inflationary impact of deficits.
The gold exchange standard and its impact on smaller nations
The gold exchange standard allowed smaller, weaker nations to utilize the gold standard by piggybacking on larger nations. This system created more leverage and credit expansion, as demonstrated by an example provided by Pali in the podcast. Under this standard, deficits incurred in trade would be settled with debt certificates rather than physical gold, increasing international liquidity and potentially leading to inflationary pressures.
Triffin's dilemma and the credibility of the Bank of England
Triffin's dilemma, which applied to the breakdown of the dollar-gold link in 1971, was discussed in relation to the classical gold standard. While Trippin correctly predicted the breakdown, the reasons were misaligned, and the result was different. The credibility of the Bank of England played a significant role in the success of the gold standard. Despite having low gold reserves, the Bank's commitment to maintaining fixed currency prices and willingness to temporarily suspend convertibility during emergencies increased its credibility. This credibility prevented a collapse of the British gold standard during the classical gold standard period.
My friend and fellow student of money codenamed "Lester" joins me for a multi-episode conversation exploring the excellent book "The Twilight of Gold" by Melchior Palyi.
// OUTLINE // 00:00:00 - Coming up 00:00:32 - Intro 00:02:05 - Helping Lightning Startups with In Wolf's Clothing 00:02:51 - Money: An Abstract Battleground in Personal Relationships 00:07:16 - The Importance of Talking about Money 00:10:05 - England's Return to the Gold Bullion Standard 00:13:20 - Norman's Letter to the Bank of Norway 00:16:10 - Effects of the Gold Bullion Standard 00:20:00 - Controlling the Price Level 00:21:03 - The Power to Say 'No' 00:23:18 - Not Your Keys, Not Your Coins 00:26:13 - Central Planners Cannot Outsmart the Market 00:27:18 - Secure Your Bitcoin Stash with the iCoin Hardware Wallet 00:28:15 - Impact of The Gold Exchange Standard 00:33:15 - The Myth of the Gold Shortage 00:37:19 - The Triffin Dilemma 00:41:55 - The Ratio of Total Dollar and Total Gold 00:43:39 - What Triffin Got Wrong 00:45:44 - Restating Why All Pegs Break 00:47:39 - Lester on The Most Likely Outcome of Continuous Inflation 00:50:53 - A Bitcoin Wallet with Privacy Built-In: Wasabi Wallet 00:51:44 - Adopting Bitcoin Will Accelerate Dollar Inflation 00:54:00 - The Cross Currency Rails between Bitcoin and Fiat 00:56:49 - Advantages of the Bitcoin Standard 00:58:25 - Applying Triffin's Dilemma to Great Britain 01:04:03 - The Significance of Myths 01:05:59 - The Concept of Yield is a Lie 01:08:12 - Concluding the First Myth 01:10:13 - Where to Find "Lester" on the Internet
