Money, Banks and Finance in Economic Thought

Triffin's contribution to the IMF monetary approach to the balance of payments

Pasotti Ilaria, independent researcher
Maes Ivo, National Bank of Belgium

While Triffin is acknowledged to have inspired the analytical concepts of the International Monetary Fund (IMF)'s monetary approach to the balance of payments (IMF, 1977; Polak, 1986, 1996, 2001; De Vries, 1987), his role has not been the topic of much research. Before working at the IMF, from July 1946 to November 1949, Triffin was, from 1942 to 1946, at the Board of the Federal Reserve System. He was firstly at the Research and Statistics Division and, later, he was the head of several missions in Latin America, advising especially on monetary and banking reforms. In this period, he conceived a monetary scheme of analysis based on the distinction between money of domestic origin (domestic credit creation) and money of foreign origin (international reserves). He presented it for the first time at a meeting organized by the central bank of Mexico in August 1946. Later, in his academic publications, Triffin would use often his monetary scheme (for instance in Europe and the money muddle, 1957). The scheme was also used by Triffin in his analysis of the Italian monetary situation during his mission to Italy (see Italy's Progress in 1948, IMF Staff paper, March 1949). Records at the Historical Archive of the Bank of Italy testify Triffin’s collaboration with Paolo Baffi in the preparation of the report and the professional (and friendship) relationship that started between them since then. So it is possible to identify a link between the development of the national monetary balance elaborated by Baffi in 1949 and Triffin’s monetary scheme, both having a very similar quantitative informative structure. Triffin also availed himself of Baffi’s contribution in the development of the monetary analysis for the Organization for European Economic Cooperation prepared with Geer Stuvel in 1958-1960. At the IMF, the distinction elaborated by Triffin was firstly adopted for the statistical monthly survey, the "International Financial Statistics", that started to be published in 1948. Then it was embodied in the model of balance of payments adjustment elaborated by Jacques Polak in the 1957 IMF Staff paper "Monetary Analysis of Income Formation and Payments Problems" that is considered as the seminal contribution of the IMF monetary approach to the balance of payments. Later, Polak will distinguish the Fund approach from the approach developed by the Chicago University's and the London School of Economics' economists (Frenkel and Johnson, 1976) by labelling it as 'Keynesian' or 'evolutionary' because it assumed that the rate of interest is the only link between monetary and real variables. In this paper we aim to explore Triffin's original contribution to the IMF monetary approach to the balance of payments and to retrace the use of his monetary scheme in his later publications. We will argue that, while Triffin, in terms of vision or Weltanschauung was very much a Keynesian, his methodological approach was very monetarist, based on the quantity theory.

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Keywords: Robert Triffin, International Monetary Fund, monetary approach to the balance of payments,

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