Only two of the three are possible at any one time, so countries must choose. Following the advice of their critics would oblige the United States and several other AEs to surrender some of their monetary policy independence. In our view, however, this would be a Faustian bargain. There is a much better way to proceed.
The trilemma should be resolved by allowing exchange rates to float, while preserving the free movement of capital and monetary independence for all. Other palliatives might be appropriate as a temporary expedient if there is obvious evidence of market excesses, but should not be used as an ongoing crutch. Canada’s experience Globalization and the economic interdependence that it implies are nothing new for Canada.