The Plaza Accord was a 1985 agreement by the G5 to intervene in foreign exchange markets to bring about a devaluation of the US dollar against the yen and the deutschmark.
Purpose of Plaza Accord
In the period 1980-85 the dollar had strengthened by over 50% against these and other currencies.
This led to lobbying by US manufacturing industry, whose exports were being made expensive and uncompetitive by the strong dollar.
If the value of the dollar were reduced, it would help US exporters.
Plaza Accord's effects
The value of the dollar did fall, and that did help US exporters.
But the strengthening yen put great pressure on the Japanese economy, followed by a long period of slow growth and deflation in Japan.
Why the name?
The Plaza Accord is named after New York's Plaza Hotel, where the Accord was signed.
Why is the Plaza Accord relevant today?
- "The strong dollar policy in question today under Trump's administration."
- The Treasurer magazine, Deals Edition 2019, p6 - The ACT and treasury timeline.
The US trade deficit with China is a particular concern in the US.
However, in any rebalancing, China does not want to experience similar problems to those previously suffered by Japan.