Stephen Grenville, 26 November 2013

The views and theories on the impossible trinity are conflicting. This column discusses some of the theories and their potential drawbacks. It points out that the impossible trinity has policy relevance for advances economies because their currencies are often close substitutes, and exchange rates follow expectations. For emerging economies, however, the policies implied by the impossible trinity could not be sustained due to the instability of their financial markets.

Stephen Grenville, 26 November 2011

The impossible trinity doctrine – that it is not possible to have a fixed exchange rate, monetary policy autonomy, and open capital markets – still holds powerful sway over policymakers and academia. But it does not reflect reality in East Asian emerging countries. Assets in different currencies and different countries are not close substitutes. Capital flows to emerging countries present serious challenges, but the trinity is not the best framework for analysing the policy options.

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