According to the hypothesis known as the impossible trilogy (trilemma) in the economic literature, freedom of capital movements, a fixed exchange rate and an independent monetary policy cannot be applied at the same time, only two of the three policies should be chosen. According to this hypothesis, if capital movements are free in an economy and an independent monetary policy is applied, then a fixed exchange rate cannot be applied, or if capital movements are under control, a fixed exchange rate regime and an independent monetary policy can be applied simultaneously (Para&Borsa, 2022).
Independent monetary policy and a fixed exchange rate policy describes the gold standard, open capital accounts and fixed Exchange rate describes the Bretton Woods system, open capital account and independent monetary policy describes flexible exchange rate (Aydin, 2014).
Bibliography
Aydın, Y. (2014). Açık Ekonomide Trilemma. İstanbul Üniversitesi Sosyal Bilimler Dergisi, 1, 1-15.
Para&Borsa. (2022, 12 13). https://www.paraborsa.net/ adresinden alındı.
