Was The Plaza Agreement Of 1985 A Success
”The Plaza Agreement is widely regarded as the most successful episode of coordinated foreign exchange interventions… Kamal Sharma, director of G-10 foreign exchange strategy at Bank of America Merrill Lynch, wrote in a statement Wednesday. Major players included grain exporters, the U.S. auto industry, major U.S. manufacturers such as Caterpillar Inc., and high-tech companies such as IBM and Motorola. By 1985, their campaign had gained enough ground for Congress to consider passing protectionist legislation. The prospect of trade restrictions prompted the White House to begin negotiations that led to the Plaza agreement.   The historic Plaza Agreement of 1985, signed at the Plaza Hotel in New York, was a growth agreement signed by the nations known at the time as the G-5: West Germany, France, the United States, Japan and the United Kingdom. The aim was to force the US to devalue its currency due to a current account deficit that is estimated to be close to 3% of GDP, in line with paragraph 6 of the agreement. More importantly, European countries and Japan have recorded huge current account surpluses and negative GDP growth, threatening foreign trade and GDP growth in their home countries.
The dollar fell about 40 percent over the next two years, with the trade balance also improving after a typical delay, Harvard Kennedy School economist Jeffrey Frankel recalled in a 2015 paper. while Congress refrained from adopting new trade barriers. In fact, it was so successful that two years later, in a Paris agreement known as the Louvre Agreement, global policymakers agreed to work together to stop the dollar`s fall. Thus, for the first time, the world cooperated by agreeing to improve the exchange rate system over a two-year period by intervening in each nation`s foreign exchange markets. . . .