America’s Greatest Trade Deal: The Plaza Accord? #shorts

The Plaza Accord was an agreement by the G5 - US, Germany, Japan, France and Britain, to manipulate exchange rates to lower the dollar’s value in 1985.

An agreement struck in New York’s Plaza Hotel.

Between 1980 and 19885, the dollar had appreciated by a staggering 77% compared to its main trade partners. Leading to less competitive exports, cheaper imports and a rising trade deficit.

By manipulating exchange rates the accord helped to lower the dollars value, helping to reduce America’s trade deficits.
But this did have some unintended consequences.
Policies to increase demand, like tax cuts and government spending, helped create a massive credit and asset bubble in Japan.
When this burst, Japan experienced a lost decade of low growth and deflation in the 90s.

Ironically, the plaza accord was so successful at cheapening the dollar, it was largely reversed in 1987 by the Louvre Accord.

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#PlazaAccord #trade #currency #shorts

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