II. ROBERT TRIFFIN: FROM THE SON OF A BUTCHER TO AN EMINENT SPECIALIST OF INTERNATIONAL MONETARY MATTERS

Robert Triffin was born on 5 October 1911 in Flobecq, a beautiful and unspoilt village in the francophone part of Belgium (Maes with Pasotti Reference Maes, Pasotti and de Larosière2021). He came from a modest background (his father was a butcher) and he was the first in his family to study at high school and university. It was a turbulent period. At the age of twenty-four, the young Triffin had already lived through the First World War, monetary and financial turmoil after the war, the Great Depression, the 1935 Belgian franc devaluation, and the rise of fascism.

Going to the university in Louvain marked a dramatic break for Triffin, not only in practical terms but also in terms of Weltanschauung, as he became an avowed pacifist. He was very much under the intellectual influence of Albert Einstein, the 1921 Nobel Prize-winner in physics and a leading anti-militarist. Triffin also shared many of his friends’ fascination with Henri de Man’s New Socialism. De Man, who had been a professor at the University of Frankfurt, was considered one of the new theoreticians of socialism in the interwar period. One of his famous works was Au-delà du marxisme (Beyond Marxism; de Man Reference de Man1927). It was a reaction against traditional Marxism, rejecting class warfare and collective appropriation of the means of production and exchange. When de Man came back to Belgium in 1932, he was active in the Belgian Labour Party, becoming its president in 1938. In 1934, he launched the idea of “The Plan” to transform the Belgian economy and combat unemployment. De Man wanted to give the State more leverage to steer the economy. One of his key proposals was the nationalization of the banks.

At the University of Louvain, Triffin followed the courses on money and central banking by Albert-Edouard Janssen and Paul van Zeeland (Maes with Pasotti Reference Maes, Pasotti and de Larosière2021). They put strong emphasis on how the monetary system was evolving, with gold gradually being replaced by fiduciary money. Janssen was also active in the debates on an international clearing union in the 1920s (see his contribution for the Provisional Economic and Financial Commission of the League of Nations).Footnote ¹ Later, Triffin would draw on these ideas, arguing for “fiduciary” money in the international monetary system. These ideas were very similar to those of Keynes, who also highlighted how gold was losing its role in the monetary system.

Triffin obtained a degree in economics in 1935. As a young economist, he was active at the Institut des Sciences Économiques. In the interwar period, the Institut became the first modern economic research centre in the Low Countries (Maes Reference Maes2008). The dominant figure was Léon-H. Dupriez, a leading scholar in business cycle analysis. During this period, Belgium, as a small open economy, was badly affected by the Great Depression. It was hit hard by the sharply contracting world trade and falling international prices. This prompted major debates. In the spring of 1934, Dupriez argued that a devaluation was the only solution. In March 1935, Paul van Zeeland, a colleague of Dupriez, was appointed prime minister and he immediately devalued the franc by 28%. The young Robert Triffin was responsible for the calculations of the devaluation percentage (Maes Reference Maes2013).

Triffin went to Harvard in 1935. There, he fell under the spell of Joseph Schumpeter and pure economic theory. As he wrote in an autobiographical article, “A few weeks at Harvard, however, sufficed to convince me that what I missed most was an adequate training in pure theory, then taught at Harvard by Professor Schumpeter whose broad culture in that field, and others, was as unique as his class showmanship” (Triffin Reference Triffin1981, p. 241). At the center of economic theory, for Schumpeter, was general equilibrium theory. Triffin wrote a dissertation, Monopolistic Competition and General Equilibrium Theory (Triffin Reference Triffin1940), under the direction of Schumpeter, along with Wassily Leontief and Edward Chamberlin. In this work, he tried to reconcile imperfect competition theory, which had its origins mainly in Marshallian partial equilibrium theory, with general equilibrium theory. So, Triffin became an authority on imperfect competition theory, a theory that would further shape his perception of international monetary phenomena. At Harvard, one of his best friends was Shigeto Tsuru, who would become a crucial pillar of his Asian network (see section III).

Triffin got back to monetary economics when he started working for the Board of Governors of the Federal Reserve System in Washington, from 1942 to 1946, focusing on monetary reforms in several Latin American countries, most famously Paraguay. The Triffin missions to Latin America constituted a break with the earlier approaches to international money doctoring. United States central bank officials not only rejected the classical liberal policies, but they also “went out of their way to consult with, and learn from, their Latin American counterparts as well as to tailor and differentiate their advice to the specific needs of each country” (Helleiner Reference Helleiner2009, p. 24). Triffin himself emphasized that his aim was to put monetary and banking policy at the service of the “overwhelming development objectives previously ignored in central bank legislation” (Triffin Reference Triffin1981, p. 118). In these years, Triffin became a close friend of Raúl Prebisch, whom he attracted as an advisor for his mission to Paraguay. Prebisch brought a formidable experience as one of the architects of the new Argentine central bank, and Triffin also supported Prebisch during a difficult period in his life (Dosman Reference Dosman2008, p. 193). Their collaboration continued throughout the 1950s and the 1960s when Prebisch was, first, the executive secretary of the United Nations Economic Commission for Latin America (ECLA) (1950 to 1963), and then the secretary-general of the United Conference on Trade and Development (UNCTAD) (1964 to 1969).Footnote ² Triffin became an adviser at both institutions. This showed Triffin’s excellent networker capacities.

During his time at the Federal Reserve, Triffin wrote a first important essay on the international monetary system, entitled “National Central Banking and the International Economy” (Triffin Reference Triffin1946). Triffin was very critical of the classical theory, which ascribed balance of payments disequilibria to international cost and price disparities. Triffin argued that two types of balance of payments deficits should be financed by international reserves. The first comprised reversible deficits, which reflected temporary fluctuations in foreign revenues and expenditures. The second case concerned fundamental disequilibria, calling for corrective action but for which the adjustment would take time. This implied a need to finance temporary deficits. Consequently, international liquidity was crucial to bridge temporary imbalances (Rojas Reference Rojas, Cunha and Suprinyak2021).

Later, Triffin went on to elaborate these ideas in Europe and the Money Muddle (Reference Triffin1957) and Gold and the Dollar Crisis (Reference Triffin1960), the book that made him famous. The focus was on international liquidity and the vulnerability of the international monetary system. For Triffin, these were two closely interrelated and urgent questions. His initial focus was on the level of international liquidity in the world economy, but this quickly led to a broader issue, “the vulnerability of a world monetary system whose operation becomes increasingly dependent on one or a few national currencies as major components of international monetary reserves” (Triffin Reference Triffin1960, p. 19; original italics).

In line with the teachings of his professors at Louvain, Triffin took a broad perspective on the evolution of the monetary system. In his view, the First World War and the Great Depression had completely changed the role of monetary reserves (Maes with Pasotti Reference Maes, Pasotti and de Larosière2021). He considered that the universal disappearance of gold coins from active monetary circulation had fundamentally modified the role of central bank reserves. Their main function was no longer to preserve the overall liquidity of individual central banks “but to permit the financing of short-run deficits in the country’s external transactions” (Triffin Reference Triffin1960, p. 33). For someone so deeply affected by the experience of the 1930s, the alternative was gloomy: “In both cases, an insufficient level of reserves will force the deficit country to resort to otherwise unnecessary measures of deflation, devaluation or restrictions” (Triffin Reference Triffin1960, p. 34).

By the end of the 1950s, Triffin was becoming more and more worried about the United States’ international reserve position, as the country was losing gold and its foreign dollar liabilities were increasing (de Larosière Reference de Larosière, Steinherr and Weiserbs1991). Strongly influenced by the experience of the pound sterling in the 1930s, Triffin’s view was that the continued deterioration in the US net reserve position would undermine foreigners’ confidence in the dollar as a safe medium for reserve accumulation. He said:

This was precisely the policy followed by Charles De Gaulle in France in the 1960s, under the influence of Jacques Rueff (Solomon Reference Solomon1977). For Triffin, the conclusion with regard to international liquidity was clear: “further increases in dollar balances cannot be relied upon to contribute substantially and indefinitely to the solution of the world illiquidity problem” (Triffin Reference Triffin1960, p. 63). So, in Triffin’s eyes, the gold exchange standard was not sustainable, leading to his famous dilemma:

While Triffin elaborated several proposals for a global reform of the international monetary system, he also advocated, already in the second half of the 1940s, a regional approach. In July 1946, Triffin was one of the first recruits of the International Monetary Fund (IMF), as head of the Exchange Controls Division of the Research Department (Maes with Pasotti Reference Maes, Pasotti and de Larosière2021). Initially he was still very much involved with Latin America. However, his attention would shift more and more to European issues as the reconstruction of western Europe became the crucial policy issue in the immediate postwar period. Triffin’s regional approach was in line with his pragmatic and empirical approach, focusing on country-specific situations, which he had developed in his Latin American country missions. Triffin’s growing advocacy of a regional approach toward monetary reconstruction was not appreciated very much at the IMF. In 1948, at his own request, Triffin was appointed to lead the IMF Representative Office in Europe. In this position, he closely followed the negotiations for trade and payments agreements in Europe. In December 1949, Triffin joined the Paris office of the US Economic Cooperation Administration (ECA), which administered the Marshall Plan. In this capacity, he played a key role in both the preparation of the December 1949 ECA plan and the negotiations of the EPU. Triffin was described as “a consummate financial technician, eagerly advancing ingenious and usually successful methods for solving the mechanical problems posed by an automatic clearing systemˮ (Kaplan and Schleminger Reference Kaplan Jacob and Schleminger1989, p. 39).

Already in the fall of 1947, Triffin had written a study, with his colleague Raymond Bertrand, analyzing the European payments and trade situation (Maes and Pasotti Reference Maes and Pasotti2018). In this study, Triffin outlined his first proposal for a multilateral clearing arrangement.Footnote ³ Triffin was very critical of the bilateral payments agreements, especially because such bilateral balancing involved discrimination among import sources as well as export markets, distorting European trade. The result was that countries purchased goods from countries with which they had a bilateral surplus or that were willing to grant further loans, rather than making purchases from producers offering the lowest price. Consequently, bilateralism effectively slowed down Europe’s economic recovery.

Triffin proposed then to create a European clearing union. The idea was to replace the different patchworks of bilateral agreements between European countries with a multilateral agreement. Payments by the different countries to other members would then be paid into the clearing union, “and the country would receive an equivalent balance in the Clearing which it could then use to settle the current account deficits with any Clearing memberˮFootnote ⁴. Triffin further favored the introduction of an intra-European unit of account, called “European dollarˮ or “interfranc,ˮ to express the balances in the clearingFootnote ⁵. Indeed, for the functioning of both the compensation mechanism and the multilateralization of net debts or claims, the European Payments Union needed a monetary unit (in which all accounts could be denominated). This was a sensitive issue, as the choice of this unit would also determine the exchange rate guarantee attached to the union’s credit operations (Triffin Reference Triffin1957, p. 172). The EPU agreement created a special EPU unit of account, initially defined by a gold content equal to that of the 1950 US dollar. In a footnote in Europe and the Money Muddle, Triffin claims paternity for this formula and points to its significance for the future of European monetary integration: “my own objective in proposing and defending this formula … was also to define a form of exchange guarantee that might be used later to encourage a resumption of capital movements in Europe, and a monetary unit that might be adopted in future agreements on European economic integration” (Triffin Reference Triffin1957, p. 173). Triffin would be actively involved in this process himself (Maes with Pasotti Reference Maes, Pasotti and de Larosière2021).

In the following years, Triffin further advocated the development of the EPU as the most practical way ahead for monetary integration in Europe. He suggested, first, to set up a joint reserve fund, constituted by deposits from the member countries (Triffin Reference Triffin1953, p. 210). By providing financing in the event of balance of payments difficulties, this fund would avoid countries resorting to policies such as exchange rate adjustments or exchange restrictions. Moreover, it would strengthen the managing board’s influence on members’ policies. Second, he advised wider use of the EPU unit of account in all intra-European loans and investments. This idea was picked up by Fernand Collin, the chief executive officer of the Kredietbank, one of Belgium’s most important commercial banks. It would help “restore capital markets in Europe and might provide governments with a far more attractive source of financing than the printing pressˮ (Triffin [1951] Reference Triffin and Triffin1966, p. 461).

Triffin defended monetary regionalism not just as an essential solution to the internal imbalances of a particular region but also because of profound imbalances between the different regions. The regional solution of returning to currency convertibility was less risky and brutal than the global approach. Or, as he expressed it at a conference in Tokyo in 1968, “worldwide cooperation must be structured” (Triffin Reference Triffin1968b, p. 28).

III. TRIFFIN’S JAPANESE NETWORK

Robert Triffin, the networker par excellence, had also many friends in Japan. It is not the purpose of this paper to offer a comprehensive overview of Triffin’s Japanese network. The focus here is on his contacts who played a role in Asian monetary integration. Of particular importance are Shigeto Tsuru and Saburo Okita.Footnote ⁶

As mentioned earlier, at Harvard Triffin became a very close friend to Tsuru. Tsuru was expelled from high school for his involvement in a student movement that opposed the military training in school and for organizing a study group on Marxism (quite similar to Triffin’s interests in Louvain). In Japan, Marxism became very influential among intellectuals in the interwar period, also in the academic economics profession (and remained so in the postwar period), due to the Great Depression and the “policy of aggression pursued by the ruling clique” (Tsuru Reference Tsuru1964, p. 79).

In 1931, Tsuru went to the United States to continue his higher education at Lawrence College in Appleton (Wisconsin). After two years he moved to Harvard, where he completed his undergraduate studies and then went into the graduate school to major in economics. At that time Harry Dexter White was also at Appleton. Tsuru mentions White but admitted that he missed his “inspirational teaching” because, at that time, he was more interested in physiology than in economics (he wrote an essay entitled “Some Neurological Considerations of the Vitalism vs Mechanism Controversy” in 1932).

At Harvard, both Triffin and Tsuru stayed at Adams House. Triffin remembered, “We struck up an immediate, growing and lasting friendship, and became known with two other Adams House undergraduates [Arthur Schlesinger and Chadbourne Gilpatrick] as the ‘Three Musketeers’ (who were also four, as any Dumas fan knows)” (Triffin Reference Triffin1976, p. 65). Tsuru’s research interests differed from Triffin’s and he also displayed “a peripatetic propensity” as admitted by himself (Tsuru Reference Tsuru1982, p. 232). While he devoted his doctoral thesis to “Business Cycle Theories and Their Application to Japan” (May 1940), he also carried on his studies in Marxian economics, the subject of his undergraduate dissertation.Footnote ⁷ Among his most valuable contributions in these years was the Appendix to Paul Sweezyʼs The Theory of Capitalist Development, which, according to Paul Samuelson, could be considered as “one of the best expositions of Marxian economics for economists trained on Marxian lines” (Samuelson Reference Samuelson1976, p. 56). Tsuru’s Appendix, relating the steady and expanded reproduction tableaux of Karl Marx to François Quesnay’s tableau économique and to Leontief–Keynesʼs circular flows, occupies a permanent place in the history of economic doctrines: as proudly remembered by Tsuru, it was mentioned by Schumpeter in his History of Economic Analysis (Reference Schumpeter1954), being the only reference to a Japanese economist throughout the book (Tsuru Reference Tsuru1982, p. 235). Tsuru and Triffin shared an avowed pacifism. At Triffin’s death, Tsuru wrote to his wife Lois: “I am proud of being able to have counted Robert Triffin as a colleague and close friend not only in connection with the discipline of economic science but also to the pursuit of peace in the world.ˮFootnote ⁸

It should be no surprise, then, that Tsuru, Triffin’s old and intimate friend of his Harvard years, played a crucial role in Triffin’s Japanese network in the postwar period. Moreover, Tsuru played a pivotal role in bringing together Japanese and American economists after the Second World War (Ikeo Reference Ikeo2011). Tsuru returned to Japan in 1942 and, during the war, he worked for the foreign ministry. In April 1946, as the Allies were looking for a competent economist who was fluent in English, Tsuru became an economic adviser to the Economic and Scientific Section of the Supreme Commander of Allied Powers (SCAP). He had an important role in economic policy-making in the immediate postwar period. He, together with Saburo Okita, was responsible for the first Economic White Paper on the Japanese economy in 1947 (see also below). With his American experience and openness, Tsuru brought not only a cosmopolitan attitude but, thanks to his Harvard studies, he also introduced American economic language and theories into the community of Japanese economists and economic officials (Ikeo Reference Ikeo and Ikeo2000, p. 149). According to Martin Bronfenbrenner, probably the American economist with the closest connections to Japan and also a close friend of Tsuru, Shigeto Tsuru was, in the immediate postwar period, “the Japanese economist best known in America” (as quoted in Ikeo Reference Ikeo2011, p. 31).

Thanks also to Tsuru, Triffin’s work became very influential in Japan. Both men had re-established contact at the end of the 1940s, after the separation caused by the Second World War. In 1949, Triffin supported Tsuru’s appeal to gather books and journals in the field of economics from his old teachers and colleagues at Harvard to update the library of Hitotsubashi University (Tsuru Reference Tsuru1982, p. 239).Footnote ⁹ In January 1957, Tsuru, after being at Harvard for a seminar, was invited by Triffin to give a lecture on the international balance of payments of Japan at Yale, where Triffin had been professor since 1951.Footnote ¹⁰ In 1960, he was, on Triffin’s initiative, appointed to the prestigious Irving Fisher Chair.Footnote ¹¹ On Tsuruʼs suggestion, Triffin became a correspondent to the Nihon Keizai Shimbun (Japanese economic newspaper), the most important and widely respected of Japan’s daily business-oriented newspapers (Triffin Reference Triffin1976, pp. 66–67). Triffin contributed several articles to the newspaper in the 1960s and 1970s,Footnote ¹² which was an important channel for propagating his ideas in Japan. Moreover, many of his books and articles were translated into Japanese (Gold and the Dollar Crisis was published in Japanese in 1961, one year only after the publication of the book in English).Footnote ¹³

Triffin visited Japan on various occasions. In 1962, after his first journey in the Asian country, he wrote to Tsuru, acknowledging the “thankless job to protect me from misinterpretation and to volunteer yourself for such a dull task.ˮFootnote ¹⁴ On that occasion the Asahi, one of Japan’s most important newspapers, organized a debate between them, focused on the impact of European integration on the international economy, especially Japan. For both Triffin and Tsuru, the decline of the economic supremacy of the US and the integration process in Europe were leading to a more “independent” Europe, and, as Triffin stated: “This is a gratifying tendency. It is not commendable that the world is divided by two great powers, with all other countries as their satellites.”Footnote ¹⁵ Triffin remained in favor of cooperation between the United States and Europe, but he hoped that this “Atlantic organization” would evolve to a worldwide cooperation, also involving Japan.

Tsuru and Triffin agreed that the European Common Market would help to stabilize the world economy and make trade liberalization easier. Triffin emphasized that, contrary to the predictions of Gottfried Haberler—who was one of their professors at Harvard—the European Economic Community (EEC) countries, while pushing liberalization among themselves, also would be willing to adopt liberal policies toward the outside countries, especially at the request of the United States and Japan. He further suggested that Japan should conclude provisional economic agreements with the EEC and step up the economic unification of Asia with the creation of a Pacific economic community. This latter proposal was very much related to Triffin’s belief that it was easier to make progress in trade and payments liberalization in a smaller group of more homogeneous (from both an economic and political point of view) countries than on a global scale (Maes with Pasotti Reference Maes, Pasotti and de Larosière2021, p. 109). As we will see, Triffin himself would be very much involved in the project of an Asian payments union in the late 1960s.

Yet, both Triffin and Tsuru recognized that the economic integration of Asia could be more difficult than that of Europe because of the gap between backward countries and advanced countries such as Japan. Both economists admitted that closing the gap required not only economic aid but political efforts by all countries to discard protective trade measures, especially those of the wealthy countries towards the industrial products of the backward countries. Triffin went further, highlighting the need to improve the international trade structure and abandon protectionism:

Tsuru and Triffin also discussed the competition between capitalist and socialist countries, a fashionable topic in those years, and very relevant for Japan, as it had to counter the rise of socialist countries in Asia. The issue was also among Tsuruʼs main research fields.Footnote ¹⁷ Like quite a few economists at the time, Triffin and Tsuru thought the socialist countries were in an advantageous position with respect to capitalist countries because they had a unified price policy. Moreover, Triffin observed that the socialist countries were short of the products that backward countries wanted to export (agricultural and other products of primary industry) while they had an oversupply of producer goods that were needed by backward countries, so, “it [was] very likely … that the trade between the socialist countries and the backward countries will develop.ˮFootnote ¹⁸

While Triffin’s work was very influential in Japan, Triffin paid scant attention to Japan in his analysis of the international monetary system. Several factors can account for this. Triffin developed his analysis of the international monetary system during the 1940s and 1950s, when Japan was not an important player in the world economy. Moreover, Triffin’s analysis focused on the reserve position of the international monetary system: gold, dollars, and IMF facilities (the two most common tables in Triffin’s publications show the composition of reserves in the international monetary system and the United States balance of payments). In these years, Japan did not play an important role in the international monetary system.

Triffin and Tsuru often met when Triffin was traveling in Asia. In one of these circumstances, in 1968, Triffin traveled with his wife and his son Eric,Footnote ¹⁹ who recollected the experience:

Another close, and influential, friend of Robert Triffin in Japan was Saburo Okita. Tsuru and Okita knew one another quite well. They worked together at the foreign ministry during the war and, thereafter, at the Economic Stabilization Board, which was created on the instruction of the Allied Powers. It was later transformed into the Economic Planning Agency (EPA). As mentioned above, they co-authored the well-known White Paper on the Japanese economy in 1947 (Ikeo Reference Ikeo and Ikeo2000, p. 148).

Okita would become a great friend of Triffin. In his autobiography, Okita tells that he made his first trip to Europe in 1950. At the Organisation for European Economic Cooperation (OEEC) in Paris, he met Triffin, “a world authority on international economics, who was then in the process of establishing the European Payments Union” (Okita Reference Okita1993, p. 35). Noteworthy is that Triffin is the only person who is mentioned by name in Okita’s account of this European mission.

In the early 1950s, Okita was Japan’s first (informal) representative at the ECAFE. He also became chief of the ECAFE’s Economic Analysis Section, representing “the able Japanese bureaucracy” (Ikeo Reference Ikeo and Ikeo2000, p. 148). Okita returned to Japan in December 1953, while, in 1954 and 1955, Tsuru worked at the ECAFE in Bangkok. But Okita continued to be involved in ECAFE activities and he organized an ECAFE conference in Tokyo in 1955, the largest conference in Japan since the Second World War (Okita Reference Okita1993, p. 96). He was also at the famous Bandung conference in the same year, which marked the start of the non-aligned movement. This represented an economic “return to Asia” for Japan (Metzler Reference Metzler2013) and a more critical attitude towards the United States.

Okita became famous as one of the architects of the Japanese economic miracle in the 1960s. In 1959, Okita, as a member of the EPA, was one of the most important officers in charge of drafting the Income Doubling Plan (Ikeo Reference Ikeo and Ikeo2000, p. 159) that boosted Japan’s economic growth in the 1960s. In 1964, he became the director general of the Japan Center for Economic Research. During the 1970s, he was a member of the steering committee of the Club of Rome (Okita Reference Okita1993, pp. 37–39), which published the famous Limits to Growth report (Meadows et al. Reference Meadows, Meadows, Randers and Behrens1972). He was the foreign minister from 1979 to 1980 and remained very active on the international scene (Okita Reference Okita1993).

Other Japanese contacts of Triffin, in the area of Asian integration, were Kenichi Odawara and Kiyoshima Kojima. Odawara was a professor at Sophia University and also played an important role in the discussions on Asian payments arrangements in the framework of ECAFE (see below). Kojima, a professor at Hitotsubashi University, was one of the translators of Triffin’s Gold and the Dollar Crisis into Japanese. He was the inspirator of the Pacific integration plans in the 1960s, which were finally implemented only two decades later with the creation of the Asian Pacific Economic Cooperation (APEC) in 1989 (Pacific Economic Cooperation Council 2005). Triffin is also thanked in the Preface of Kiyoshima Kojima’s Reference Kojima1971 Japan and a Pacific Free Trade Area. Footnote ²¹

IV. TRIFFIN’S PROPOSALS FOR PAYMENTS ARRANGEMENTS IN ASIA

The main forum for discussions about monetary integration in postwar Asia was the United Nations Economic Commission for Asia and the Far East. It was established in 1947 in Shanghai with just ten members (six developed countries: Australia, France, the Netherlands, the Soviet Union, the UK, and USA; and only four from the region: China, India, the Philippines, and Thailand).Footnote ²² With decolonization its membership increased quickly. Regional cooperation in trade and payments was an old agenda item for ECAFE.Footnote ²³ Already in 1948, an ECAFE Working Group of Experts had examined the financial arrangements needed to facilitate intra-regional trade, but the IMF was critical of it, as were also the United States and the United Kingdom, whose currencies were important in regional Asian trade (Odawara Reference Odawara1968, p. 32). Japan, which remained under Allied occupation until 1952, became a member of ECAFE only in June 1954. That same year already, with both Tsuru and Okita involved with the ECAFE, Japan advanced a proposal for an Asian payments union, stimulated by the “bright success” of the EPU (Murano Reference Murano1968, p. 32).

The 1960s was the so-called Decade of Development, very much supported by U Thant, the first Burmese Asian to become secretary general of the United Nations in 1961. In Asia, ECAFE was active in promoting economic growth and progress. In 1966, under its auspices, the Asian Development Bank was established. During the second Ministerial Conference on Asian Economic Cooperation, in December 1965, there was significant concern that trade liberalization in the region might lead to balance of payments imbalances. The conference called then for the constitution of a study group to examine payments arrangements to prevent such imbalances. In August 1967, a seminar was organized in Bangkok on “Financial Aspects of Trade Expansion.” The basis for the discussions at this seminar were two studies: one by Joseph Gunn and one by Robert Triffin.Footnote ²⁴

We do not know exactly why and how Robert Triffin was asked for this study. However, in these years, Triffin was already a well-known expert on regional monetary integration. He was not only one of the “fathers” of the European Payments Union but he had also developed plans for the United Nations Economic Commission for Latin America (ECLA, where Prebisch, as above mentioned, was then the executive secretary)Footnote ²⁵ in the early1950sFootnote ²⁶ and for the United Nations Economic Commission for Africa (ECA) in the first half of the 1960s.Footnote ²⁷ Moreover, Triffin had an extensive network in Asia. As mentioned, two of Triffin’s closest friends in Japan, Tsuru and Okita, were involved with the ECAFE when Japan had proposed its plan for an Asian payments union in 1954.

In the introduction of his 1967 report, Triffin emphasized the limitation of his contribution:

In his report, Triffin (Reference Triffin1967) developed proposals for payments arrangements within the ECAFE region, emphasizing the creation of a “Clearing House” between the central banks of the countries of the region. Over time, he would develop different variants of these proposals. During a conference of the Japan Center for Economic Research, he focused on a ECAFE “Reserve Fund” (Triffin Reference Triffin1969). In all his articles Triffin emphasized the trend toward regional monetary cooperation and integration, with Europe and Latin America as clear examples:

So, in line with his earlier ideas, Triffin emphasized that, also for Asia and the Far East, trade liberalization was hardly separable from other commitments to financial, economic, and political cooperation and mutual assistance. In his view, “Some sort of ECAFE Payments Union is likely to prove as indispensable to the success of any ECAFE trade liberalization programme” (Triffin Reference Triffin1967, p. 37). Triffin’s proposals focused on three main elements:

1. 1. mutual settlements within the ECAFE area, with a clearing house (Triffin Reference Triffin1967) or Asian reserve fund (Triffin Reference Triffin1969);

2. 2. a working balance and/or short-term credits in the national currency of the countries concerned (of a rather limited size and mostly automatic in character, similar to the “interim finance” method of the European Payments Union (Triffin Reference Triffin1967, p. 41); and

3. 3. the development of monetary cooperation of a broader type, with also the aim of mutual assistance in the financing of policies for economic development.

For analytical purposes, Triffin divided the ECAFE region into three groups—developed: Japan, Australia, New Zealand; developing (eastern): Hong Kong, Malaysia-Singapore, Philippines, Indonesia, Thailand, China (Taiwan), Republic of Korea, Cambodia, Republic of Vietnam, Republic of Laos; and developing (western): Iran, India, Pakistan, Ceylon, Burma, Afghanistan.

Triffin observed further that, for most countries, their trade with developed ECAFE countries was significantly higher than with the developing ones. The main exception was Japan, which was mainly trading with the developing countries. For Triffin, this was an important argument to certainly include Japan in any regional ECAFE arrangements.

At the center of the payments union would be a “clearing house” of the central banks of the participating countries (Triffin Reference Triffin1967). The clearing house would deal exclusively with its member central banks rather than with commercial banks or the public. Private traders would continue to operate with their own commercial banks, and the commercial banks would continue to clear with their central bank only those operations that could not be cleared directly among them through the market.

The operations of central banks with the clearing house would not, of course, balance from day to day. Daily transactions with the clearing house would thus require the maintenance by each central bank of an adequate working balance and/or credit line in its account. For Triffin, it was important that all accounts at the clearing house should carry some form of exchange guarantee, “at least equivalent to that now enjoyed on alternative reserve investments in major money markets” (Triffin Reference Triffin1967, p. 44).

An important issue was the choice of the currency for the denomination of the accounts of the clearing house. One possibility was to denominate the accounts in the US dollar. However, in line with his ideas from the European Payments Union, Triffin proposed the creation of a special unit of account, which might be called “the Asian.” Like the EPU unit, it could be defined in such a way as to keep it at parity with whichever member currency that would fluctuate least in the future (providing thus an exchange rate guarantee for the deposits at the clearing house).

Triffin further proposed the creation of an ECAFE reserve fund, which could be constituted by bringing together a certain percentage of the international reserves of the participating countries’ central banks (Triffin suggested 10%, similar to many of his proposals for a European reserve fund). The ensuing deposits of the central banks at the reserve fund could be held in the form of interest-earning and exchange-guaranteed deposits. For the reserve fund borrowing facilities, Triffin generally favored systems of discretionary borrowing but subject to close consultations, rather than borrowing rights. However, he admitted that, in the beginning, it might be better to start with automatic but modest credit facilities “until experience has been gained by all” (Triffin Reference Triffin1967, p. 51). He suggested that countries initially could, “upon simple request,” borrow up to twice the amount of their deposit, “in order to meet up to one half of its over-all deficits as measured by the decline in its over-all monetary reserves as calculated by the IMF” (Triffin Reference Triffin1967, p. 52).

Triffin admitted that, in general, export and import transactions could be handled by the countries’ domestic banking systems and international reserve transactions. However, he advanced three reasons in favor of regional clearing arrangements: some trade was still conducted under bilateral agreements, involving settlements in inconvertible currencies; there could be significant foreign exchange savings and higher returns on reserve assets through investing in assets with longer maturities and the elimination of intermediation “profits” of New York and London banks; and it would stimulate closer relationships between the monetary leaders and experts of the ECAFE countries.

Triffin further advocated a monetary cooperation of a broader type, providing for balance of payments assistance and development financing: “The purpose here would be not merely the expansion of mutual trade, but also the strengthening of currency convertibility and stability plus mutual assistance in the financing of soundly based policies for economic development” (Triffin Reference Triffin1967, p. 48). Triffin observed that, as of the end of 1966, the ECAFE countries held total gross reserves of $8 billion. In his view, these countries could benefit greatly from any arrangement that would enable them to devote a substantial fraction of these reserves to lending and investments within the ECAFE region itself, rather than to “sterile gold accumulation” or to loans and investments to richer countries such as the United States and the United Kingdom. “This should be all the more logical as a large portion of their foreign transactions (about one-third of merchandise trade, but a lesser percentage of other transactions) takes place within the ECAFE region itself” (Triffin Reference Triffin1967, p. 48).

In the conclusion of his 1967 paper, Triffin emphasized the analogy between his proposals and the idea of an “international clearing union,” as advanced by Keynes. By substituting “fruitful international credits and investments for sterile gold hoarding,” contractionary pressures on international trade would be replaced by expansionary forces, without “any real sacrifice for reserve holders” (Triffin Reference Triffin1967, p. 55). Triffin admitted that there were two differences between his and Keynes’s proposals: a regional clearing house had to keep part of its international reserves in order not to endanger the external convertibility of the currencies of the countries of the clearing union; and ECAFE reserve deposits would primarily substitute for foreign-exchange reserves rather than for gold, as most of the ECAFE reserves would be in foreign currencies.

V. THE RECEPTION OF TRIFFIN’S IDEAS

Triffin’s proposals were the topic of many discussions and debates, also in Japan. In 1969, the Japan Center for Economic Research, then under the directorship of Okita, organized a conference in Tokyo, with Harry Johnson, of the University of Chicago, as the main discussant. As might be expected, there was a vivid discussion between Triffin and Johnson about the advantages of a payments area. Regarding the potential for foreign exchange savings, Johnson admitted that the ECAFE countries would be able to raise the earnings on their reserve assets through lengthening the average maturity of their reserves. However, he was skeptical about Triffin’s argument of interest rate gains from eliminating intermediation profits enjoyed by New York and London: “The belief that middleman’s margins represent an uneconomic and avoidable waste is a fallacy more commonly encountered in relation to farming than to finance; they are, in fact, payments for services which are typically difficult to provide more cheaply by co-operative effort as indeed, much of the history of consumers and producers cooperatives in poor countries tends to confirm” (Johnson Reference Johnson1969, p. 286).

The main issue in the Triffin–Johnson exchange at the Tokyo conference was Triffin’s skepticism about the working of the market economy and his belief that institutional change could put in motion a process of change and growth. This contrasted with Johnson’s stronger belief in market forces. Triffin, strengthened by the success of the European experience, believed that the payments union could be a catalyst for further integration: “The main potentialities of the proposed system do not lie in the agreements that are negotiable today between countries distrustful of one another and unused to close co-operation. They lie in the future expansion which concrete experience with initially conservative solutions is likely to trigger over time, in an evolutionary rather than revolutionary fashion” (Triffin Reference Triffin1967, p. 54). In Triffin’s view, based on his analysis of the history of central banking, the clearing functions of the system were even more crucial than the initial credit provisions: “Let us remember that the vast lending powers and policy influence acquired over time by national banking systems have had their historical roots in the clearing facilities which they provided and which attracted to them the deposits of member banks” (Triffin Reference Triffin1967, p. 54).

Johnson, in line with his free market ideas, was skeptical about Triffin’s institutional schemes. He criticized the “strong temptation to believe in the catalytic value of some modest institutional change or financial manipulation, and faith in the power of monetary magic, on the one hand, and in the entrepreneurial powers of central bankers, on the other.” Here, he also envisioned Triffin, who argued that regional trade liberalization would be bound to fail if it were not accompanied by an ECAFE reserve system. Johnson traced this view to Triffin’s distrust in the functioning of the international monetary system. In Johnson’s view, there was no evidence for this, as opposed to the contrary view that regional trade liberalization without regional monetary cooperation was perfectly possible, “provided that the international monetary system is functioning well and countries are prepared to play the rules of the international monetary game. I suspect that Triffin is implicitly envisaging a continuing situation of international monetary crisis.” Johnson concluded, “But continuing crises apart, it seems to me that the case for an ECAFE reserve system should rest on its direct financial advantages in economizing on reserves and raising the yield on reserve assets, not on a presumed prerequisiteness to regional trade liberalization” (Johnson Reference Johnson1969, p. 287). Triffin could not have agreed more with the basic issue. For him, with international monetary turmoil, countries would use protectionist measures to correct their balance of payments. Regional integration was a way to create an island of relative peace and stability in a world in turmoil. This would also require regional trade cooperation to be backed up by regional monetary cooperation.

For Triffin, Japanese participation was crucial for the success of the Asian reserve fund. In his view, for the Asian reserve fund to have enough resources at its disposal, it was important that the countries with significant international reserves and with important balance of payments surpluses should participate, especially Australia and Japan.

However, the appetite in Japan for an Asian payments union was not very big. Originally, the plan was mainly supported by debtor countries. As observed by Arthur Paul at the 1969 conference of the Japan Center for Economic Research, “Although some Japanese spokesmen have at times expressed mild interest, the official Japanese position has been definitely negative. The American position appears to have shifted from one of indifference to support expressed in very general terms and related to the U.S. policy of fostering regional co-operation” (Paul Reference Paul1969, p. 289).

The 1960s were a time that Japan, with strong economic growth and balance of payments surpluses, was becoming more self-conscious. In 1968 The Oriental Economist organized a roundtable discussion on Triffin’s concept of an Asian payments union, moderated by Okita. One of the participants was Yusuke Kashiwagi, the Japanese vice-minister of finance for Foreign Affairs. As observed by that other famous Japanese monetary negotiator, Toyoo Gyoten, Kashiwagi was the crucial player in Japanese international monetary and financial policy-making at the end of the 1960s and early 1970s.Footnote ²⁹ In Japan, traditionally, the Finance Ministry had a dominating role in international financial diplomacy, while the Bank of Japan had a subsidiary role and became independent only in 1998 (Yago Reference Yago, Feiertag and Margairaz2012, p. 127). The Finance Ministry, with Kashiwagi, was a strong advocate of a pro-growth policy, a contrast with the emphasis on price stability by the Bank of Japan. Moreover, Kashiwagi played a key role on the international monetary scene, not only as a policy-maker, but he also participated in the meetings of the famous Bellagio group, which were organized by Triffin, together with Fritz Machlup and Wiliam Fellner (Maes with Pasotti Reference Maes, Pasotti and de Larosière2021, pp. 114–115).Footnote ³⁰ Later, in 1986, as the chairman of the Board of Directors of the Bank of Tokyo, he would give the distinguished Per Jacobsson Lecture on “The Emergence of Global Finance,” in which he argued that the “development of global finance should be fostered and directed to promote the growth of investment on a global scale” (Kashiwagi Reference Kashiwagi1986, p. 3).

Kashiwagi stressed that Japan needed balance of payments surpluses in order to avoid “stop and go policies,” whereby economic growth had to be curtailed due to balance of payments crises (as was the UK experience in the 1960s). Moreover, he raised the issue of debtors and creditors in the system: “The reality of the matter is that in the ECAFE region there are a few large creditors and a large number of debtors” (Kashiwagi Reference Kashiwagi1968, p. 36). Kashiwagi, sounding very much like a German official in European monetary negotiations, further elaborated on the issue of surplus and deficit countries:

He then raised the issue that there were already a number of countries in default and that some other countries were very close to being in default: “And it is very hard to start a system at the outset when a number of countries are known to be in default.” Kashiwagi further observed that the degree of trade liberalization within the region was very different from that outside the region and that a transfer of 10% of international reserves was a “sizeable amount.” He concluded, questioning the superiority of Triffin’s regional approach: “There are many problems that can be solved better at the regional level than the global level. But I think some of the problems are easier to solve at the global level and not at the regional level. This question of debtors and creditors within a smaller region may be a more difficult question to resolve. These questions may be resolved better at the world level” (Kashiwagi Reference Kashiwagi1968, p. 37). Here, also, there is some similarity with the approach of the European central bank governors at the time. When discussing monetary proposals of the European Commission at the end of the 1960s, the governors argued that monetary issues were global issues, not European ones (Maes Reference Maes2006).

In his reply to Kashiwagi, Triffin argued that a country with a balance of payments surplus had to lend in any case, with or without an Asian payments union. The question was to whom and in which form: “Can you attach to your lending through ECAFE as many earning provisions and guarantees against exchange risk or against default as those that are attached to your lending via New York or London?" (Triffin Reference Triffin1968b, p. 38). In Triffin’s view, his proposals implied that lending via ECAFE would be “more attractive earning-wise and safer exchange risk-wise and default-wise because the provisions which I included here against default, are such as never existed in any international kind of lending” (Triffin Reference Triffin1968b, p. 38). In Triffin’s view, an Asian payments union would not only allow surplus countries to lend under more attractive and safer conditions than without a payments union, it would also encourage the shifting of power from the Western countries to the ECAFE. Kashiwagi did not react any more to this argument. It would become a crucial concern after the Asian financial crisis.

Triffin’s proposals for regional monetary integration were also debated by the ECAFE countries, and in the 1960s and 1970s, several initiatives aimed at regional integration in Asia were taken (United Nations ESCAP 2014, pp. 7–8). Triffin was very influential in these debates. As already discussed, his proposals were the topic of high-level conferences in Japan. Moreover, following the ECAFE Bangkok seminar in 1967, Triffin was asked to lead an expert mission to initiate consultations with ECAFE countries interested in undertaking clearing and payments arrangements. Eventually, instead of a mission, an informal round of consultations with the representatives of the ECAFE countries was organized at the annual sessions of the World Bank and the International Monetary Fund in Washington in October 1968.Footnote ³¹ An important milestone in the ECAFE negotiations was the “Foundation Paper on Regional Payments Arrangements for ECAFE Countries” by Kenichi Odawara of January 1970, wherein Triffin’s ideas figured prominently.Footnote ³² Thereafter, Triffin was tasked, together with Pierre Uri, a close collaborator of Jean Monnet in the postwar period and one of the main negotiators of the Rome Treaty,Footnote ³³ with a follow-up mission to explore the positions of the different countries concerning Asian trade and payments arrangements in the spring and summer of 1970.Footnote ³⁴ With these missions, Triffin also played a sort of “diplomatic” role, as earlier during the negotiations of the EPU. It shows Triffin as a policy-maker; he was not only a theorist of clearing unions. After the completion of the Triffin–Uri mission and following its recommendations, the ECAFE countries, at the Fourth Ministerial Conference on Asian Economic Co-operation in December 1970 at Kabul, decided to establish an Asian Clearing Union (ACU).Footnote ³⁵ On the website of the ACU, it is argued, “Success of the EPU encouraged developing countries to set up similar Clearing Unions in Africa, Latin America as well as in Asia and the Pacific region.” It is also noteworthy that the Uri archives contain a non-dated copy of the agreement but with the signatures of six countries: Bangladesh, India, Iran, Nepal, Pakistan, and Sri Lanka. In 1974, the Asian Clearing Union was effectively created. However, its membership remained more limited with mainly countries from western Asia. A further indication of Triffin’s influence in these debates is that he is explicitly mentioned in a short (three-page) official history of ECAFE (Jolly Reference Jolly2009).

During the 1970s, further progress was made on regional integration in Asia. Various meetings were held among the ECAFE countries on a regional trade expansion program. The July 1975 “Bangkok Agreement” constituted the first trade agreement among developing member countries of the ECAFE (Bangladesh, India, Laos, Philippines, Republic of Korea, Sri Lanka, and Thailand), which was to be considered “a breakthrough in the history of regional trade cooperation in Asia,” as Prok Amranand (head of the International Trade Division of the ECAFE) wrote to Uri.Footnote ³⁶ In 1977, the five founding members of the Association of Southeast Asian Nations (ASEAN; created in 1967 and then comprising Indonesia, Malaysia, the Philippines, Singapore, and Thailand) signed the ASEAN Swap Arrangement, considered as the embryo of an Asian regional safety net arrangement (Rhee, Sumulong, and Vallée Reference Rhee, Sumulong and Vallée2013); however, it has been criticized as being insufficient during the Asian crisis.

Asian monetary union really appeared on the agenda with the Asian financial crisis of 1997. As observed by Tharman Shanmugaratnam, in his Per Jacobsson Lecture, Asian monetary union was very much “a metaphor for Asia wanting to manage its own affairs” (Shanmugaratnam Reference Shanmugaratnam2006, p. 3). There was a stringent criticism in Asia of the role the IMF played during the crisis. The perception in Asia was that the IMF, very much under US influence, did not provide enough bridge financing to countries in difficulty and overemphasized moral hazard arguments and structural reforms, in strong contrast with the Mexican crisis of 1994 (Lipscy Reference Lipscy2003).Footnote ³⁷ In a broader sense, it led to a discomfort with the “Washington consensus,” especially the destabilizing role that capital movements could have (quite similar to arguments made earlier by Triffin; see Maes with Pasotti Reference Maes, Pasotti and de Larosière2021). Asian policy-makers, very much like Triffin, pursued a two-pronged strategy: reform of the global monetary system (especially giving Asia more influence in its governance), and regional monetary initiatives. In 2000, the discussions on regional financing arrangements led to an agreement on the so-called Chiang Mai Initiative of the ASEAN+3 group (ASEAN plus the People’s Republic of China, Japan, and South Korea). It was based on bilateral swap arrangements between the participating countries.Footnote ³⁸ In 2009, an agreement was signed on the “Chang Mai Initiative Multilateralized,” converting the bilateral schemes into a multilateralized pooling scheme (a development Triffin would certainly have appreciated). It is further noteworthy that Asian policy-makers, in their analysis of the international monetary system, regularly refer to the Triffin dilemma, like the former Chinese central bank governor Zhou Xiaochuan (Reference Zhou2009) in a famous speech. More recently, Yu Yongding (Reference Yongding2022), a former president of the China Society of World Economics, framed his analysis for Project Syndicate on whether the US dollar’s global hegemony was at risk in terms of the Triffin dilemma.

Naturally, regional monetary integration in Asia remained more limited than in Europe. However, when comparing monetary integration in Europe and Asia, one should also observe that not much progress was made in Europe in the 1970s. The European monetary union became an official aim of the European Community with the 1969 Hague Summit.Footnote ³⁹ However, the implementation of the 1970 Werner Report was not successful, partly because of heavy international monetary storms in the 1970s and the breakdown of the Bretton Woods system. The European monetary union really made progress from the end of the 1980s with the Delors Report and the Maastricht Treaty, leading to the introduction of the euro in 1999.

The issue of why monetary and economic integration in Europe advanced more than in Asia is certainly beyond the scope of this paper. The heterogeneity between countries, from both an economic and political perspective, was much greater in Asia than in Europe. So, the situation in Asia was probably more complex. Several countries in Asia had only recently become independent and were very wary about “colonialism,” while in many places there was also resentment against Japan due to the occupations during the Second World War. Also Uri, at the end of his mission with Triffin, remarked that the situation in Asia was much more complicated than in Europe.Footnote ⁴⁰ He singled out three main factors: the China situation (for Uri, the least important factor; at the time, “China” was represented by Taiwan); the situation in Indochina (the war in Vietnam with extensions in Laos and Cambodia); and the tense relation between India and Pakistan. The diversity in the economic and political situation between countries was then much stronger in Asia than Europe. Moreover, President Richard Nixon’s closing of the gold window in August 1971 was completely unexpected in Japan (the “Nixon shock”). After the breakdown of Bretton Woods, the Japanese yen went through massive swings, making it less attractive as an anchor country. In these years, Japan was, economically, completely dominant in Asia and more preoccupied with its global role and its relation with the United States, its most important trading partner. An important similarity between Asia and Europe is that both Japan and Germany, the main creditor countries in their respective regions, were reluctant about a process of monetary integration. Both countries feared close integration with debtor countries. However, in Europe, at the heart of the process of European integration was the Franco-German motor. Inside Germany, economic policy-makers were often deeply skeptical about plans for European monetary integration, but at crucial moments the chancellors made a choice for European integration, often because of the Franco-German relation (Maes Reference Maes2004). In Asia, such a crucial axis driving the integration process seems to have been absent. An important reason for this is that, in economic terms, Japan was completely dominating the region. As observed by Okita (Reference Okita1993, p. 101), with data for 1990, Japan accounted for 67% of the total GNP of Asia and the Pacific combined. The second largest economy was (mainland) China, but with only 8.1% of the GNP of the region. Moreover, during the second half of the 1960s, the period on which this paper focuses, communist China was internationally isolated. For Japan, the relationship with the United States was crucial. There was no country in Asia with which Japan had a relationship that had any resemblance to the Franco-German relationship in postwar Europe.