Today, we’re fortunate to have a guest contribution from Michael Bordo (Rutgers) and Robert N McCauley (BU & Oxford). A version of this post was published on VoxEU.
Stephen Miran, Chair of the US Council of Economic Advisers, claims that we live in ‘the world of Triffin’, meaning that foreign official accumulation of dollars is driving US current account deficits. This column argues that over the past ten years US current account deficits have persisted while foreign official inflows into US investments have all but dried up. If we ever did live in Triffin land, we certainly don’t anymore.
Let’s revisit what is wrong with the international monetary and financial system. Stephen Miran, chair of the US Council of Economic Advisers, claims that we live in ‘the world of Triffin’ (Hudson Bay Capital 2024; see also Bénassy-Quéré 2025). That would be a neo-Triffin world, since Belgian–American economist Robert Triffin warned in 1960 (Triffin 1960) about the danger of US external IOUs overtaking the US gold stock in an era of US current account surpluses (Bordo and McCauley 2017).
In any case, Miran claims:
- Central banks buy dollars to hold down their currencies and to run surpluses on trade in goods and services.
- Central banks hold their dollars in US Treasury securities.
- The US dollar is overvalued and the US runs current account deficits.
- US manufacturing shrinks and US workers have fewer good jobs.
- Eventually US external deficits undermine US safety and the dollar as reserve currency.
Gillian Tett in the Financial Times (2025a) considers proposals to tax capital inflows into the US (which cumulate into claim 2 above). You can ask whether such proposals would work (McCauley 2025).
A prior question needs to be asked: do we, in fact, live in the Triffin world? The idea that foreign officials are imposing trade deficits on the US is the rationale offered for proposals for the US Treasury to swap century bonds for Treasury notes held by foreign officials (Financial Times 2025b), or to tax their Treasury holdings. Does this rationale hold water?1
From 2003 until 2014, the observed flows of goods, services, and finance across the US border gave support to – or at least were consistent with – Miran’s claims 1 through 3 above.2The US current account deficit averaged 3.9% of US GDP. At the same time, foreign official inflows into all US investments averaged 2.5% of US GDP. You could say that foreign officials accounted for two-thirds of the financing of the US current account deficit. This was twice the one-third share of official financing observed during the most comparable period of a generally depreciating dollar in 1985-1994 (Bordo and McCauley 2017).
Figure 1 We’re not in Triffin land anymore
Note: 2009 foreign official inflow excludes $47.6 billion SDR allocation accounted as inflow and outflow.
Source: US Bureau of Economic Analysis; authors’ calculations.
From 2015 on, things changed. The dollar began to rise substantially against other currencies. After a modest but surprising weakening of the Chinese yuan renminbi against the dollar in August 2015, capital streamed out of China. Chinese reserves fell by about a trillion dollars in short order. Global foreign exchange reserves, mostly held in dollars, hardly grew from a local peak of $12 trillion in mid-2014 to the most recent observation of $12.4 trillion at end-2024.3 Over this period, global reserve managers have concentrated on buying gold, not dollars.
Accordingly, foreign official inflows into US investments all but dried up. In 2015-2024, the US current account narrowed to an average of 2.8% of US GDP. At the same time, foreign official inflows collapsed to an average of just 0.16% of US GDP. For ten years it has not been possible to blame US external deficits on dollar buying by foreign officials: official flows have played only a bit part in financing the US current account.
Figure 2 US foreign official inflows as a share of US current account deficit
Source: US Bureau of Economic Analysis, authors’ calculations.
In like manner, the footprint of foreign officials in the US Treasury bond market has been shrinking for over ten years. At the peak after the Great Financial Crisis, foreign official holdings reached a share of no less than 40% of the Treasury securities held outside the Fed. Many fretted about the dire effects of a ‘safe asset shortage’. Now the share has fallen to 16%, about the level during the Asian Financial Crisis 27 years ago. Now there is talk of a ‘global bond glut’ (Schnabel 2025, see also Bénassy-Quéré 2025).
Figure 3 From ‘safe asset shortage’ to ‘global bond glut’: Foreign official share of Treasury securities
Are we in Triffin land anymore? Certainly not. You can argue whether we ever were (Bordo and McCauley 2019, Bordo 2019). But for the last ten years, you cannot argue that foreign official dollar buying required US external or fiscal liabilities to snowball.
References
Bénassy-Quéré, A (2025), “Is the international monetary system ‘unfair’?”, 19 March.
Bordo, M D (2019), “The imbalances of the Bretton Woods System between 1965 and 1973: US inflation, the elephant in the room”, VoxEU.org, 7 June.
Bordo, M D and R McCauley (2017), “Triffin: dilemma or myth?”, BIS Working Paper 684.
Bordo, M D and R McCauley (2019), “Triffin: Dilemma or Myth?”, IMF Economic Review 67: 824–851.
Fahri, E and M Maggiori (2017), “The new Triffin Dilemma: The concerning fiscal and external trajectories of the US”, VoxEU.org, 20 December.
Financial Times (2025a), “Tariffs on goods may be a prelude to tariffs on money”, 13 March.
Financial Times (2025b), “About all this ‘Mar-a-Lago Accord’ chatter”, 21 February.
Gourinchas, P-O, H Rey and E Farhi (2011), Reforming the International Monetary System, CEPR Press.
Hudson Bay Capital (2024), A User’s Guide to Restructuring the Global Trading System.
Kimura, T and T Nagano (2017), “Exorbitant privilege and the Triffin dilemma through FX swaps”, VoxEU.org, 30 May
McCauley, R (2025), “Will a ‘user fee’ on US Treasuries actually work?”, Financial Times, 25 February.
Obstfeld M (2025), “The U.S. Trade Deficit: Myths and Realities”, BPEA Conference Draft, 27-28 March.
Schnabel, I (2025), “No longer convenient? Safe asset abundance and r*”, Keynote speech at the Bank of England’s 2025 BEAR Conference, London, 25 February.
Triffin, R (1960), Gold and the dollar crisis: The future of convertibility, Yale University Press.
Footnotes
- See Maury Obstfeld’s treatment of this question (Obstfeld 2025), which “extend[s] in some respects” Bordo and McCauley (2019).
- The timing in 2011 and 2017 of two important contributions to the reformulated Triffin Dilemma on Vox is revealing (Gourinchas et al. 2011, Fahri and Maggiori 2017). See also Kimura and Nagano (2017).
- https://data.imf.org/en/Dashboards/COFER%20Dashboard
This post written by Michael Bordo and Robert McCauley.
Triffin’s concern was that foreign dollar accumulation with the dollar backed by gold was unsustainable. He was right. Today’s system is mostly-floating exchange rates – thus Bordo and McCauley correct Miran with “neo-Triffin”. With floating currencies, invoking Triffin now leaves lots of room for ambiguity, which to someone in Miran’s position must seem a virtue.
The problem Bordo and McCauley point out is that Miran’s claim doesn’t fit with the data. Quelle surprise. Miran is behaving like a smarty-pants high-schooler, using words he thinks his classmates won’t know. Turns out, they do know about Triffin’s (neo-)paradox, and so they know Miran is faking.
Keep in mind where this is leading. Miran’s big idea is to restructure the global financial system in a way that rips up existing relationships and abrogates contracts, defaults on U.S. government debt on a massive scale. If the felon-in-chief were to carry out any part of Miran’s big idea, the stock meltdown we’ve just been through would seem a walk in the park.
I’m probably going to keep posting this until Republicans stop pretending that trade deficits are somebody else’s fault:
https://fred.stlouisfed.org/graph/?g=1HctD
The national saving balance drives the current account balance. The Triffin paradox, the notion of twin deficits, just about every common effort to explain the trade deficit is a partial recognition of this full national saving explanation.
Raise taxes and you raise national saving, all else equal, so raise taxes and you reduce the trade deficit. No need to default on U.S. obligations. No need to crash the global economy.