Plaza Accord

The Plaza Accord is an agreement between the representatives of the G5 countries (France, Federal Republic of Germany, Japan, U.S. and UK ), which was adopted on 22 September 1985 at the Plaza Hotel in New York. The participants agreed in this Agreement on achieving controlled by influencing the international currency markets, a depreciation of the U.S. dollar against the yen and the German mark.

Background of the Agreement was a steady since the beginning of the 1980 annual appreciation of the U.S. dollar in the international currency markets. Lag the dollar exchange rate against the D - Mark in 1980 at DM 1.82, so he rose to 1985 to 2.94 DM then tight monetary policy and the high budget deficit ( 3.5 % of GNP ), associated with an increased government demand for loans, led to a rise in interest rates in the U.S., which attracted investors and increased the demand for U.S. dollars. The rising dollar imported products in the U.S. were cheaper, while American products more expensive abroad. The trade deficit of the USA, with $ 19.8 billion was still moderate in 1980, 1983 was already $ 52.4 billion and increased until 1987 to $ 152.1 billion. This twin deficits caused the dollar continue to rise. In addition, the U.S. government came under the pressure of their own industry, which called for improved protection against foreign imports and greater stability of exchange rates.

Consequences of the Agreement

In the next two years, the dollar fell by about 50 %, the yen and the German mark were upgraded, and managed to reduce the U.S. trade deficit with Western Europe. A reduction in the trade deficit with Japan, however, was not achieved, since responded to a Japanese company to the devaluation of the dollar with price cuts. Second, the exchange rate tensions led to a recession in Japan, so there fell imports. This meant that the trade deficit with Japan were even increased.

After the two-year depreciation period, the governments represented the G5 1987, the view that exchange rates have stabilized at a realistic level and agreed in the Louvre Accord forward to support the existing exchange rates now by forces.

The resulting from the Plaza Accord appreciation of the yen is seen as a cause for the following Japanese bubble economy.