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- The Impossible Trinity or trilemma has come under focus recently as the U.S. The Federal Reserve has been raising interest rates to fight rising prices.
About Impossible Trinity
- It refers to the idea that an economy cannot pursue independent monetary policy, maintain a fixed exchange rate, and allow the free flow of capital across its borders at the same time.
- According to economists, any economy can choose to pursue only two out of the three policy options noted above simultaneously in the long-run.
- The idea was proposed independently by Canadian economist Robert Mundell and British economist Marcus Fleming in the early 1960s.
- RBI : The Reserve Bank of India may face the dilemma of choosing between maintaining the value of the rupee and holding on to its monetary policy independence. As the U.S. The Federal Reserve has raised interest rates, there has been increasing pressure on the rupee, which has depreciated almost 10% against the U.S. dollar this year.
Source:TH
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