Reverse Plaza Accord

The Reverse Plaza Accord was an agreement made by the Group of Seven (G7) advanced countries to boost the dollar's value for the stability of the world economy the month after the yen-dollar exchange rate broke below 80 yen in the Tokyo foreign exchange market on April 18, 1995. The background is as follows. The United States expected that maintaining a weak-dollar trend through the Plaza Accord would reduce its current-account deficit to some extent. However, as the current-account deficit did not shrink despite continued dollar weakness, the United States abandoned the goal of achieving current-account balance in the short term. Instead, it shifted to a policy of covering the current-account deficit with a capital-account surplus, changing its policy from a weak dollar to a strong dollar.

The backlash from the Reverse Plaza Accord was not small. It served as the direct trigger for the foreign exchange crises in Asian countries, starting with Thailand and extending to Indonesia, the Philippines, and South Korea.

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Topics: exchange rate
Category: Wiki/Economy