##balances while neglecting the system ’ s longer - term stability – an issue which i will discuss later. 2. triffin dilemma in triffin ’ s times during the bretton woods system, the dollar was the international currency, and the international currency was mainly needed as a means of payment and a unit of account to purchase foreign goods. given largely closed capital accounts and underdeveloped financial markets, the store of value function was limited, and mainly related to the need to cover any temporary shortage of dollars to import goods from abroad. the other key features of the system were fixed exchange rates vis - a - vis the dollar, the gold convertibility of the dollar, and a mechanism of adjustment of imbalances based on a symmetrical correction of domestic absorption and relative prices in the relevant countries. however, there was no mechanism to impose symmetry in the adjustment process, and adjustment through exchange rate realignments was possible, although it rarely happened. when the bretton woods system was launched, in the second half of the 1940s, the huge economic gap with the united states made it difficult for other countries to acquire dollars without us help. by the end of the 1950s, however, the global shortage of dollars was over, thanks to rising dollar - denominated exports. this was welcomed since it implied that countries no longer needed american assistance to obtain dollars in order to address postwar economic problems. yet it was not entirely good news, as triffin realised. countries such as germany and japan had indeed started accumulating large current account surpluses and, therefore, dollars in the form of rising official reserves. this implied an accumulation of us monetary liabilities vis - a - vis non - residents. the problem was that the supply of such liabilities by the united states at a fixed exchange rate was elastic to the growing demand, but the american commitment to supply gold upon request at an equally fixed price was not. 1 already by the early 1960s, us monetary liabilities towards non - residents exceeded us gold holdings. hence the dilemma, which in triffin ’ s day took the well - known, specific shape : if the united states refused to provide other countries with us dollars, trade would stagnate and the world economy would eventually be trapped in a deflationary bias ; but if the united states provided an unlimited supply of dollars, the confidence that it would convert them into gold would erode confidence in its international currency. 2 see, for example, eichengreen 2011. see

yves mersch : interview with reuters interview with mr yves mersch, member of the executive board of the european central bank, conducted by mr balazs koranyi on 14 march 2018 and published on 16 march 2018. * * * mario draghi took a cautious view on inflation, arguing that economic slack may be bigger than earlier thought. what is the implication of this unexpected slack? the policies we have undertaken, especially since 2014, have been quite successful in getting us closer to our inflation aim. but there are uncertainties about the process of inflation, given factors like globalisation and technological changes. mario draghi raised important questions, which have been discussed among central bankers : what is the non - accelerating inflation rate of unemployment ( nairu ), what is the output gap and how big is the slack? he was exploring the possibility that the degree of slack might be bigger than what you find in classical assessments. we are continuously surprised by the response of the labour market to increasing aggregate demand of a growing economy because rising demand has been leading to continuous positive supply reactions in the labour market. ecb staff estimates that the euro area output gap is closed, and there is already a positive output gap in germany. but there is little inflation. maybe there is another explanation. perhaps we are getting a supply of labour that is pushing the frontier out. in germany we know that migration from central and eastern european countries with relatively comparable skills is making an impact. without such a labour supply reaction, you would have had wage inflation about 1 percentage point higher, and as a consequence, higher inflation. would that mean that the output gap is not yet closed? that is an open question. we are all surprised by the reaction of the labour market to better economic conditions. the increasing participation of women and older people is certainly making an impact. in term of hours worked, we have not yet recovered the level of 2007. but in terms of employment, we have. it seems there is a trend for people to work less or part time. now we are reaching a floor for unemployment but it ’ s not so clear if we ’ re going to see wage increases and mario draghi was opening the conversation on the possibility that there may be more slack in the economy. that still needs to be confirmed but we already have strong evidence of a strong labour supply reaction. the survey of professional forecasters indicates that unemployment will fall to 7. 5 percent in 5 years. it ’ s not clear if that ’ s the