Topic Summary:

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The Impossible Trinity is a hypothesis that emerged as economists have noticed that the efforts of a central bank to pursue the three monetary policies- fixed currencies, monetary autonomy and capital mobility- has failed. Even though there isn't an exact date for the formalization of the Impossible Trinity, the hypothesis has been traced back to 1992. In this case, Great Britain stabilized its currency by fixing their exchange rate to the German Mark. However, they had to retract from their new policy due to the impediment stated by the Impossible Trinity. In fact, Great Britain was facing a recession despite the fact Germany was going through a substantial economic growth.

 

This historical event in the economics field can be explained through the acclaimed ‘Trifecta’. Since they opted for their fixed exchange rates, they weren't able to fully control their monetary autonomy and weren't able to resign to the capital mobility due to their economic strength. Economists have been able to analyze similar cases in Central Banks have failed to reach a balance between the different monetary policies, including the East Asian Crisis of 1997.​​

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