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Plaza accord

The Plaza accord is the council meeting by G5 nations, held at the Plaza hotel in September, 1985, and this meeting pursued correcting the higher value of US dollar.

The value of US dollar continued to fall after the summit at Rambouillet in November, 1975. The Carter administration entered the untouchable area to keep and protect the value of US dollar, so, they sold the SDR which issued by IMF for preparation of emergency and withdrew some reserve trashes. Eventually, the forex swap network was completely equipped, the official discount rate was hiked as well. In 1978, the second wave of the oil shock brought about mass stagflation in the world economy.

The Regan administration was born in such a background. This administration tightened money supply in order to control the inflation, and this caused US interest rates higher. In addition, the expansion of budget deficit brought about collapse in the bonds market and it follows sharp rising of interest rates. The Regan administration kept stance that the current account deficit should devalue US dollar and make exporters more competitive and the imbalance of trades should be automatically resolved. In fact, the appreciation of US dollar never stopped because of the rapid increase of the international capital inflows due to higher interest rates.

Called by Mr. Baker who was in charge of US Treasury, G5 financial ministers council was held at the Plaza hotel in New York in September, 1985. The contents of the Plaza accord were as follows;

  • The forex rates would take a main roll in adjusting the trade imbalance.
  • The forex rates should reflect the economic fundamentals more than now
  • From a fundamentals' viewpoint, other major currencies should hopefully appreciate to some extent.
  • To realize and prompt these matters, every nations should prepare to cooperate closely each other.

According to the Plaza accord, all central banks intervened the forex market to correct the higher US dollar, The Bank of Japan aggressively sold the US dollar against Japanese Yen to make the forex rate, USD-JPY much lower than the previous because Japanese trade surplus was much criticized in US.

Weaker dollar after the Plaza accord

The coordinate intervention by all central banks left the forex market in a panic. Especially, the forex market in Tokyo fell on long weekend and the players in Tokyo were greatly in trouble, Next week, Tokyo forex market started 12.3 big figures lower than the previous week. Both US and Japan monetary authorities kept intervening the forex market and the forex rate, USD-JPY successfully pushed down by 31 big figures in two weeks. The forex rate went downward below the 200-ish on 25th, November. It was one year and four months after the Plaza accord that the forex rate went through the 150-ish on 19th, January 1987.


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