-Narendar Jadhav (Principal Advisor DEAP, RBI)
Impossible Trinity (3 Factors) is the Incompatibility between 3 below factors
Monetary Policy Independence
Open Capital Account (Free International Capital Flows)
Fixed / Managed Exchange Rate Regime
Mundell Fleming Model –> Debate on choice between
Fixed and Floating Exchange Rate policy
The above 3 factors came into picture where all of these cannot be controlled at any given point of time.
Two of the factors can be controlled leaving third to the market forces
Floating : Increases Foreign Exchange volatility
can foresee problems in emerging economies
Following conditions are enabled on emerging economies
High Liability Dollarization — Expenditure switching only though imports
Financial Fragility
Strong Balance Sheet Effects
RATIOS 