Ranks in the impossible trinity

The impossible trinity is a trilemma in economics that states that there are three targets, a fixed exchange rate, free capital movement and an independent monetary policy, and it is impossible to achieve all these three targets at the same time. Among these three targets, I feel central banks have their priorities.

Most countries think a fixed exchange rate is the last on the list that these countries have flexible exchange rates. However, the countries in the Eurozone automatically set a fixed exchange rate as their first priority and give up their independent monetary policies as they have one single central bank, the European Central Bank.

However, although some countries have flexible exchange rates, it does not mean they need to put flexible exchange rates at the top of their lists. Free capital movement and independent monetary policy making could have different degrees of importance. Independent monetary policy making could give central banks a greater control of the domestic inflation and the power to stimulate the economies by expansionary monetary policies. Free capital movement could attract foreign investment and also allow domestic investors to invest in foreign markets.

In some extreme cases, some central banks may only focus on their only priority and give up the other two targets in order to concentrate their energy on one single issue. As sometimes, even if a central bank can achieve two goals at the same time, their energy could be split and they are not able to achieve either goal perfectly. As sometimes, capital movement could add some burden on monetary policy making.