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By Staff Reporters
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What is a Trilemma?
A trilemma refers to a situation in which three options are available, but only two can be chosen at a time. It is a situation in economics and international finance in which all three possible options are difficult or nearly impossible to achieve. Unlike a dilemma, which has two options, a trilemma has three options, all of which cannot be selected at once.
Trilemma in Economics
The impossible trinity is an example of a trilemma in economics. In an impossible trinity, a country can’t have a fixed exchange rate, independent monetary policy, and free capital movement all at once. A country can achieve only two out of the three policy objectives.
The impossible trinity involves a third option as a trilemma constraint, which cannot be achieved with the selected two options. It means that the selection of any two options will make it necessary to sacrifice the third beneficial option. It is like a three-way trade-off.
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