Dilemmas of Creating a Reserve Currency in the Conditions of Growing Debt of the Issuing Countries
Dilemmas of Creating a Reserve Currency in the Conditions of Growing Debt of the Issuing Countries

Summary/Abstract: This paper attempts to answer the question what are the limits of credibility of the reserve currency creation system in the conditions of growing debt of the issuer country. This relation is perceived in the literature of the subject through the prism of the so-called safe asset – its characteristics and demand-supply conditions. The author expands this approach by pointing to the emergence of the so-called Triffin Dilemma II in contemporary international finance, as an analogy to the Triffin Dilemma I existing in the 1960s. Triffin Dilemma sees the dilemmas of creating a reserve currency from the point of view of the credibility of the system in which the issuer is a net debtor. The main reason for the dilemmas related to the creation of the reserve currency is change in the structure of net investment positions of two groups of countries: developed and developing countries, which – along with asymmetry in participation in debt and global GDP – led to a reorientation of the role of these countries as net creditors and net debtors.

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