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The Plaza Accord was an agreement signed on September 22, 1985 by the then G-5 nations (France, West Germany, Japan, the United States and the United Kingdom). The G-5 agreed to devalue the US dollar in relationship to the Japanese yen and German Deutsche Mark by intervening in currency markets.
The exchange rate value of the dollar declined 51% over the following two years after this agreement took place. Unlike some similar financial crises of the 1990's (such as the Mexican and the Argentinian financial crises of 1994 and 2001 respectively), this devaluation was planned, done in an orderly manner with pre-announcement, and did not lead to financial panic in the world markets.
The reason for the dollar's devaluation was two-fold: to reduce the US current account deficit, which had reached 3.5% of the GDP, and to help the US economy to emerge from a serious recession that began in the early 1980's. Devaluing the dollar made US exports cheaper for its trading partners, which in turn meant that other countries bought more American-made goods and services. The Plaza Accord reduced the US trade deficit, and made US manufactured goods more competitive in the exports market. The accord led to the bubble economy in the 1990s in Japan. The Louvre Accord was signed in 1987 to stop the continued decline of the US Dollar.
The Plaza Accord was signed in the Plaza Hotel, in the city of New York.
See also: Economics, Japan, Economy of Japan, Yen
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