Impossible Trinity
Also called the Mundell-Fleming trilemma. The proposition that a central bank cannot simultaneously have a fixed exchange rate, an open capital account, and an independent monetary policy. Any country must give up at least one of the three: a peg with open capital flows surrenders monetary independence (Hong Kong); a float with open capital flows preserves monetary independence (US, UK, eurozone); a peg with monetary independence requires capital controls (China historically). The trilemma is the central organizing principle of international macro policy choice.
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