Optimal International Monetary Architecture Under the Conservation Law: Channel Separation, Automatic Rules, and the Impossibility Budget

This paper develops the constructive consequence of the adversarial aggregation channel (AAC) conservation law for international monetary architecture design. The conservation law established in the companion Triffin paper proves that total impossibility is conserved across an international monetary system: institutional redesign migrates failure across modes but cannot eliminate it. The present paper accepts this constraint and reframes the design problem: given a fixed impossibility budget, how should it be distributed across failure modes to minimize expected systemic damage? An impossibility budget theorem formalizes this criterion. Under convex, heterogeneous cost functions across four failure modes — liquidity failure, credibility failure, sovereignty failure, and symmetry failure — the optimal allocation equalizes marginal costs across modes, minimizes exposure to the systemic (liquidity) failure mode due to its catastrophic tail loading, and localizes credibility risk at the national level where convexity makes distributed small failures cheaper than a single large one. A channel separation theorem proves that splitting the credibility channel (domestic) from the liquidity channel (international) eliminates the Triffin constraint at their junction, reduces total adversarial capacity, and restores dimensional adequacy: the separated architecture matches channel dimension to signal-space dimension, placing it at or above the Nyquist threshold. A governance minimization theorem proves that automatic rule-based issuance of the international settlement asset eliminates the Arrow impossibility for operational supply decisions entirely, confines it to rare constitutional amendments, and reduces the Myerson–Satterthwaite incentive-compatibility gap to a bounded welfare loss proportional to indicator noise. A symmetric carry-cost theorem proves that equal charges on persistent surpluses and deficits is the unique budget-balanced mechanism achieving bilateral adjustment incentives without requiring truthful type revelation. A failure quarantine theorem proves that under channel separation, domestic credibility failures propagate to global liquidity at most proportionally to the failing nation's trade share, converting potential systemic collapse into a bounded local disturbance. A Pareto-optimality theorem proves that the resulting architecture — independent national currencies, rule-based multilateral clearing, symmetric carry costs, and no convertibility promise — cannot be improved on any failure dimension without worsening another. The paper classifies existing and proposed systems (gold standard, Bretton Woods, post-1971 dollar standard, euro area, Keynes's Bancor) by their impossibility allocations and systemic exposure profiles, locating each within the conservation-law framework.