I'm trying to understand the impossible trinity

in #monetarylast year (edited)

The impossible trinity is an economic theory which says that is impossible to have the following 3 elements simultaneously:

  • A fixed foreign exchange rate
  • Free capital movement
  • An independent monetary policy

This topic got my attention when I read @nnnarvaez's post and his project of exploring the economic models of steem like blockchains.

The impossible trinity sounds a little bit tricky, however I decided to analyze each element in order to try to discover something new:

Fixed Foreign exchange rate

In a fixed exchange rate scenario, 1 STEEM would be 1 USD (or another fixed value). Currently this is not the case because STEEM price floats against other currencies.

Free capital movement

A currency can be exchanged for another currency without restrictions. This is not true at all for STEEM because it can be traded only on some exchanges (Bittrex, Lykke, Binance, Hitbtc, etc) and people in some countries are restricted to buy cryptocurrencies.

Moreover, STEEM can be exchanged into a few cryptocurrencies like USDT, BTC, ETH, BNB and fiat currencies like KRW or USD, so it is hard to traded it against local fiat currency or other cryptos.

An independent monetary policy

From a central bank point of view, an independent monetary policy means that a central bank cannot interfere in the market [1] . Things get confusing when applying the same concept to crypto. Some blockchains are decentralized therefore there is not a central authority that interferes in the market, at least in theory. This gives the impression that decentralized blockchains have an independent monetary policy.

What's your opinion about this? Please share your thoughts!

References:
[1] https://economialoestodo.wordpress.com/2017/01/06/conozcamos-sobre-el-trilema-o-trinidad-imposible/ (Spanish)
https://en.wikipedia.org/wiki/Impossible_trinity

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Hi @danielfs, thanks for joining the discussion,

I want to clear that it is the SBD that should float 1 to 1 to the USD the steem is free to do as it pleases.

The SBD was introduced for that.

please look into my recent posts i put a link ot the original white paper where you can read about the purpose of STEEM VESTS and SBD.

Can't wait for your update analysis.

BTW right now all coding skills as well as linux type experience is welcome hit me on discord

The blockchain has also some kind of centralized institution with some tools to influence the internal market (read the top20 witnesses and some of the settings they are free decide individually)

Thanks for your clarification and suggestions @nnnarvaez.

SBD should float 1 to 1 to the USD to encourage ecommerce. However SBD price peg to USD was broken in the past, therefore would be interesting to understand how Steem blockchain try to peg to USD to find some mechanism to keep the price peg.

Moreover SBD could be an interesting competitor for stablecoins.

In conclusion, I'll update the post but I should read again the whitepaper. The conceptual framework is right there and deserves a deep understanding, specially the economics section.