Reached on September 22, 1985, the Plaza Accord was an agreement by the G5 countries to coordinate their currency interventions to drive down the over-valued dollar to avert protectionist measures from Reagan’s second term. There are stark parallels between then and now. While the world outside the US may not be in a position to agree to accept a weaker dollar now, and there may be policy inconsistencies in the US this year, a ‘Mar-a-Lago Accord’ might be possible later this year or next year, we think, perhaps on the 40th anniversary of the Plaza Accord?
To the currency nerds, September 22 is an important date in the currency world. In 1985, the agreement between the US, Germany, Japan, the UK, and France to conduct joint interventions to drive down the dollar's value mechanically literally bent the currency world. The dollar did depreciate, forcing the G6 (G5 plus Canada) to announce the Louvre Accord on February 22, 1987, to halt the dollar devaluation as it was deemed sufficient.
In 2000, when EURUSD weakened to 0.8230, down from the ‘IPO’ rate of 1.17 in January 1999, joint interventions by the largest central banks in the world to support the EUR also took place on September 22 that year – on the 15th anniversary of the Plaza Accord. In that cycle, EURUSD rallied steadily and significantly, eventually reaching its peak of 1.6038 on July 15, 2008. In retrospect, this event in 2000 was important and the joint interventions were very effective in correcting significant mispricing of a major currency cross. However, the experience also showed how exchange rates could easily overshoot on the other side as well.
Following the tradition of naming multinational currency accords after the hotels in which the meetings were held, this possible event has been referred to as the Mar-a-Lago Accord. (Ironically and interestingly, President Trump briefly owned the Plaza Hotel from 1988-1995.) We propose another Plaza-like accord on September 22, 2025, on the 40th anniversary of the Plaza Accord, half in jest, of course.
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What is covered in this note?
Our note covers topics such as:
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Introduction
- The Plaza Accord (1985) and its impact
- Historical significance and parallels to today
- The idea of a "Mar-a-Lago Accord"
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What the Trump Administration Has Said About the Dollar
- Market expectations vs. economic theory
- The lessons from Trump 1.0’s tariff strategy
- Key statements from Trump on USD policy
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A Mar-a-Lago Accord Would Not Be Possible Now
- Arguments against immediate USD intervention
- Global economic conditions preventing an agreement
- The political optics and resistance from key economies
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But Such an Accord Could Be Possible in the Future
- The U.S. vs. China and Europe: Opposing economic cycles
- The tariff alternative: Devalue or face trade restrictions
- China’s historical reluctance to repeat Japan’s Plaza Accord mistake
- The broad overvaluation of the USD
- The role of fiscal consolidation in supporting a currency deal
- A weaker dollar’s potential boost to U.S. exports
- The role of swap lines in coordinated intervention
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Bottom Line
- The balance between tariffs and dollar devaluation
- Why market conditions could shift in favor of a new currency accord
- The likelihood of a "Mar-a-Lago Accord" materializing
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Disclosure
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