Subnostr

The Impossible Trinity (Trilemma) in economics states that a country cannot achieve all three of the following goals at the same time:

1. Free Capital Flow – Unrestricted movement of capital across borders.

2. Fixed Exchange Rate – A stable currency value relative to others.

3. Independent Monetary Policy – Control over interest rates and money supply.

A country can only achieve two of these three goals simultaneously. For example:

• If a country wants free capital flow and an independent monetary policy, its exchange rate must float.

• If it wants free capital flow and a fixed exchange rate, it must give up an independent monetary policy.

• If it wants independent monetary policy and a fixed exchange rate, it must impose capital controls.

This highlights the trade-offs in managing economic policies in a globalized economy.