Triffin’s dilemma

Important Information

We want to make investing with us simple and straightforward for all of our clients.

Please select your investor type from the options below.

Alternatively you can register or log in to an existing account.

Please note that by making your selection here you are agreeing to the Woodford Investment Management Ltd Privacy Statement and to our Terms and Conditions.

Neil Woodford 8 July 2016 Est. reading: 4 min read

Given recent political events, it feels strange to be writing about anything other than Britain’s relationship with Europe. I have been clear throughout the EU Referendum campaign, however, that there are many more important influences on the long-term outlook for the UK economy than the outcome of the Referendum and I continue to stand by that view, now that the outcome is known.

Globally, I see several interlinked challenges that are combining to exert downward pressure on global economic growth rates and look likely to continue to do so for some considerable time. The eurozone economy epitomises some of these issues with its sluggish growth, stagnant productivity, ideological conflicts, troubling debt dynamics and poor demographics.

Flaws in its monetary union have exacerbated some of these problems for Europe but the region does not have a monopoly on them – wherever we look around the world, we see them. Additionally, with liquidity problems in emerging markets, a dangerous credit bubble in China and the continued threat of a prolonged period of deflation, it is clear that investors have a lot to worry about.

One of the rare economic bright spots in recent years has been the US. Last December, the Federal Reserve (Fed) raised interest rates for the first time in almost a decade in a valedictory move to declare victory over the stagnation that had afflicted its economy ever since the financial crisis. With relatively robust domestic growth and a job market deemed to be approaching full employment, the Fed judged a rate hike to be an appropriate move in monetary policy for the US economy. But it certainly wasn’t what the rest of the world needed.

This isn’t a new phenomenon. In 1960, the Belgian American economist Robert Triffin argued that the Fed could “either run policy that was right for the US or it could run policy appropriate for the rest of the world”. In benign economic times, he argued that one policy might suit all for a period but, in times of trouble, the US dollar’s dominant role in the Bretton Woods fixed exchange rate system would result in serious economic imbalances around the world. He was right – ‘Triffin’s dilemma’ had identified a dynamic that would ultimately lead to the collapse of that system in the early 1970s.

The Bretton Woods agreement had originally come into force in the aftermath of World War II, when delegates from the 44 Allied nations gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire to find a common and co-ordinated path towards global economic recovery. The result was a fixed exchange rate system in which each country’s currency was pegged to the value of gold, thereby preventing individual states from attempting to gain an economic advantage through competitive devaluation.

The US dollar’s pivotal role in this system was its ultimate undoing and, although we now live in a world of floating rather than fixed exchange rates, the US dollar’s status as ‘reserve currency’ can continue to cause problems. When the dollar is strong, it effectively means that global liquidity conditions become tighter. In turn, this causes problems in particular for emerging markets which are reliant on the flow of dollars to sustain their economic growth. ‘Triffin’s dilemma’ is alive and well in modern financial markets.

Ironically, I believe it is a Bretton Woods style accord that is required to enable the global economy to move on from the current period of stagnation. The policy outcomes would likely be somewhat different but it would be the concept of co-operation that would matter. These are multi-regional, global problems and their solution requires co-ordinated global policy action.

The prospect of such co-ordinated policy remains pretty remote but the longer economies remain mired in stagnation, the more plausible it becomes. Perhaps the voting behaviour of the British public recently could be seen as a wake-up call for policymakers which hastens such an outcome?

In the meantime, the global economy is slowing and the US economy doesn’t look as robust as it did. This is already having an impact on global earnings and, in my opinion, that is likely to continue. Not all companies are affected by the global economic challenges to the same extent, however, and this is why my investment strategy continues to favour businesses that are largely in control over their own destinies. That leaves me feeling optimistic about what my funds can deliver over the long-term, despite the unprecedented global challenges.

This article first appeared in Money Marketing on 7 July 2016.

What are the risks?

  • The value of the fund and any income from it may go down as well as up, so you may get back less than you invested
  • Past performance cannot be relied upon as a guide to future performance
  • The ongoing charges figure is charged to capital, so the income of the fund may be higher but capital growth may be restricted or capital may be eroded
  • The fund may invest in other transferable securities, money market instruments, warrants, collective investment schemes and deposits – some of these security types could increase the fund′s volatility and increase the level of indirect charges to which the fund is exposed
  • The fund may invest in overseas securities and be exposed to currencies other than pound sterling – as a result, exchange rate movements may cause the sterling value of investments to decrease or increase
  • The fund may invest in unquoted securities, which may be less liquid and more difficult to value, because they are generally not publicly traded – the lack of an open market may also make it more difficult to establish fair value

Important information

Before investing, you should read the Key Investor Information Document (KIID) for the fund, and the Prospectus which, along with our terms and conditions, can be obtained from the downloads page or from our registered office. If you have a financial adviser, you should seek their advice before investing. Woodford Investment Management Ltd is not authorised to provide investment advice.

The Woodford Funds (Ireland) ICAV (the “Fund”) has appointed as Swiss Representative Oligo Swiss Fund Services SA, Av. Villamont 17, 1005 Lausanne, Switzerland. The Fund′s Swiss paying agent is Neue Helvetische Bank AG. All fund documentation including, Prospectus, Key Investor Information Documents, Instrument of Incorporation and financial reports may be obtained free of charge from the Swiss Representative in Lausanne. The place of performance and jurisdiction for all shares distributed in or from Switzerland is at the registered office of the Swiss Representative. Fund prices can be found at

Woodford Investment Management Ltd is authorised and regulated by the Financial Conduct Authority (firm reference number 745433). Incorporated in England and Wales, company number 10118169. Registered address 9400 Garsington Road, Oxford OX4 2HN.

Woodford Patient Capital Trust plc is incorporated in England and Wales, company number 09405653. Registered as an investment company under section 833 of the Companies Act 2006. Registered address Beaufort House, 51 New North Road, Exeter, EX4 4EP.

© 2019 Woodford Investment Management Ltd.
All rights reserved.

Are you sure?

By disagreeing you will no longer have access to our site and will be logged out.

Privacy Preference Center

Experience Tracking

Lets our analytics service track you across our different websites and enables data sharing among our different marketing tools.

AMCV_[Tracker ID]@AdobeOrg (Adobe), [Tracker ID]@AdobeOrg (Adobe)
Adobe Analytics (helps us provide you with more relevant experiences and content based on your likely interests). Cookies: demdex, dextp, dpm, DST, DSTJS
Twitter personalisation (by better understanding how devices are related, Twitter can use information from one device to help personalize the Twitter experience on another device). Cookies: personalization_id
Heap Analytics (provides metrics on user behaviour and actions throughout the site). Cookies: _gid, _hp2_id.[Tracker ID],_hp2_props.[Tracker ID], _ga, _mkto_trk, optimizelyBuckets, optimizelyEndUserId, optimizelySegments, raygun4js-userid, _attribution_referrer, _csrf
Adobe Analytics (provides you with more relevant experiences and marketing messages based on your likely interests). Cookies: _tmae ,ev_sync_dd,ev_sync_yh,everest_g_v2,gglck

Traffic Metrics

Allows Woodford to aggregate information on website usage and popular content

_ga, _gid
Google Analytics (tracks and reports website traffic and user behaviour): Cookie: CONSENT
New Relic (application and server performance monitoring – allows us to spot problems with our website code and improve them to keep things running smoothly). Cookie: JSESSIONID
Adobe Analytics (provides you with more relevant experiences and marketing messages based on your likely interests). Cookies: __qca,__smToken, _ga, _mkto_trk, _rtbmedia

Search History

Populates the 'recent searches' section of the website navigation.


Close your account?

Your account will be closed and all data will be permanently deleted and cannot be recovered. Are you sure?