Impossible Trinity and BoP theories

The “impossible trinity,” proposed by Robert Mundell and Marcus Fleming, has fundamentally shaped modern monetary economics. The theory argues that no country can simultaneously maintain free capital mobility, a fixed exchange rate, and independent monetary policy. A country must forgo one of these three policy objectives. In this note, I use a simple example to illustrate why it is impossible to achieve all three simultaneously. I also briefly discuss theories of the balance of payments (BoP).