Plaza Accord - Financial definition
Concise definition of the term Plaza Accord
The Plaza Accord was a 1985 agreement among the G5 nations (United States, Japan, West Germany, France, and the United Kingdom) to intervene in currency markets to depreciate the U.S. dollar relative to the Japanese yen and the German Deutsche Mark. This was aimed at correcting trade imbalances and addressing the economic issues caused by the overvalued dollar.
Comprehensive definition of the term Plaza Accord
The Plaza Accord, signed at the Plaza Hotel in New York City, marked a significant moment in international economic cooperation. It aimed to address the large U.S. trade deficits and the strong dollar, which were hurting American exports and leading to protectionist pressures. The agreement involved coordinated interventions by central banks to sell dollars and buy other currencies, effectively devaluing the dollar.
This move not only helped to reduce trade imbalances but also set a precedent for future international monetary policy cooperation. The resulting depreciation of the dollar boosted U.S. export competitiveness, while Japan and Germany faced appreciating currencies, which eventually led to economic adjustments in those countries. The Plaza Accord is often studied in the context of exchange rate policies and the impact of coordinated international efforts on global financial markets.