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