Trilemma (impossible trinity)

The Trilemma, or impossible trinity, describes a key challenge faced by countries in managing their economies: they can’t have all three of these at once—a stable currency (fixed exchange rate), free capital movement (no restrictions on money entering or leaving), and independent monetary policy (controlling interest rates to manage the economy). Usually, countries must choose two, sacrificing the third. For example, if they want free capital flow and independent policy, they can’t maintain a fixed exchange rate. This trade-off helps explain why countries' economic policies are often interconnected and constrained.