- Plaza Accord
The Plaza Accord or Plaza Agreement was an agreement signed on
September 22, 1985at the Plaza Hotelin New York Cityby 5 nations - France, West Germany, Japan, the United States and the United Kingdom. The five agreed to, amongst others, depreciate the US dollarin relation to the Japanese yenand German Deutsche Markby intervening in currency markets.
exchange ratevalue of the dollar versus the yen declined 51% over the two years after this agreement took place. Most of this devaluation was due to the $10 billion spent by the participating central banks. Currency speculation caused the dollar to continue its fall after the end of coordinated interventions. Unlike some similar financial crises of the 1990s (such as the Mexican and the Argentinian financial crises of 1994 and 2001 respectively), this devaluation was planned, done in an orderly manner with pre-announcement, and did not lead to financial panic in the world markets.
The reason for the dollar's devaluation was twofold: to reduce the US
current account deficit, which had reached 3.5% of the GDP, and to help the US economyto emerge from a serious recessionthat began in the early 1980s. The U.S. Federal Reserve Systemunder Paul Volckerhad overvalued the dollar enough to make industry in the US (particularly the automobile industry) less competitive in the global market. Devaluing the dollar made US exports cheaper to its trading partners, which in turn meant that other countries bought more American-made goods and services. The Plaza Accord was successful in reducing the US trade deficitwith Western European nations but largely failed to fulfill its primary objective of alleviating the trade deficit with Japan because this deficit was due to structural rather than monetary conditions. US manufactured goods became more competitive in the exports market but were still largely unable to succeed in the Japanese domestic market due to Japan's structural restrictions on imports. The recessionary effects of the strengthened yen in Japan's export-dependent economy created an incentive for the expansionary monetary policies that led to the Japanese asset price bubbleof the late 1980s. The Louvre Accordwas signed in 1987 to halt the continuing decline of the US Dollar.
It is unlikely that such an arrangement would have succeeded in the long run, as the global economy is too large, heterogeneous, and fluid for even the most sophisticated central banks to effectively intervene.Fact|date=February 2007
The signing of the Plaza Accord was significant in that it reflected Japan's emergence as a real player in managing the international monetary system.
Economy of Japan
* [http://www.g8.utoronto.ca/finance/fm850922.htm Announcement the Ministers of Finance and Central Bank Governors of France, Germany, Japan, the United Kingdom, and the United States (Plaza Accord)]
* [http://www.treas.gov/offices/international-affairs/esf/history/#IO8590 U.S. Treasury - Exchange Stabilization Fund, Intervention Operations 1985-90]
* [http://www.anz.com/edna/dictionary.asp?action=content&content=plaza_agreement Plaza Agreement, ANZ Financial Dictionary from Language of Money by Edna Carew]
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