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Plaza Accord or Plaza Agreement is the agreement between the USA, France, Germany, Great Britain and Japan about the coordination of efforts in order to adjust the exchange rates, signed in 1985 at the Plaza Hotel, New York. The essence of the Plaza Accord for the currency market development was the revaluation of the existing exchange rate system.

According to the Plaza Agreement, US dollar was depreciated in relation to the G-5’s and Japanese currencies. This was achieved by these countries’ central banks intervention in the currency markets. The prerequisites of this agreement were that the early 1980s saw the lowest levels of inflation as for the European countries and Japan in 20 Years – not only inflation was low, but the interest rates as well, at the same time when trade and current account surpluses were huge. At the same time the USA suffered from enormous current account deficit and the US currency was very much overappreciated in relation to European and Japanese currencies. (information by forex expert)

The great discrepancy between the world’s largest economies threatened the world currency market balance and trade. Thus, in order to improve this situation, a global decision has been made that exchange rates had to be adjusted.

The aims of the Plaza Accord were to reduce the current account deficit in the USA and to drag the US economy out of recession. As a result, US currency was devalued for about a half of its previous value, while European and Japanese currencies were, on the contrary, revalued for 50% (information by forex expert).

The key significance of the Plaza Agreement and exchange rate adjustment lied in the cooperation between the world countries in the economic terms. This was the rise of the economic globalization which continued and deepened in future.

The adjustment of exchange rates resulted in increasing of the US economy competitiveness, especially as far as exports are concerned. Earlier American domestic products couldn’t compete with the cheap imported products. What is more, manufacturing also became more profitable. In addition, American exports became cheaper and more attractive to other countries.

Japan was the country that felt the harshest effects of the exchange rate adjustment – the strong yen in combination with the export-oriented economy plunged the country in recession (called Japanese assets price bubble).

Today currency prices aim at calculate the inflation levels in order to measure the growth policies in contrast to the subjective aims set with the Plaza Agreement.

Article is based on information from forex expert.