List and Explain the Three Attributes of the "Ideal"currency

Question

Examlex · Accepted Answer

The Answer is The first attribute is exchange rate stability (ERS). With ERS the value of a currency would be fixed relative to other major currencies, thus assuring traders of relatively stable values and reduce the uncertainty of floating exchange rates and uncertain values. The second attribute is full financial integration (FFI). With FFI, traders would be willing and able to move funds from one country to another in response to economic opportunities or risks. Finally, we have monetary independence (MI). With MI, each country is free to set domestic interest rate and monetary policies to pursue economic and political objectives.
Together, these attributes of the ideal currency form the impossible trinity because a nation cannot effect all three characteristics of their currency at one time. A floating exchange rate works for financial integration and monetary independence, but at the expense of exchange rate stability. Stable exchange rates brought on by tight national controls may allow monetary independence, but would then sacrifice full financial integration in the world markets. The bottom line is you can't have all three at once.

List and Explain the Three Attributes of the "Ideal"currency

Definitions: