Plaza Accord

You’ve been going to the gym. And heyyy, you’re looking good. Then there are those guys at the gym who are super-buff. Almost scary-buff. Strength is good, but too much of anything ends up being...a not-so-good thing.

Same goes for the U.S. dollar. The USD prides itself on being the strong, internationally used currency that it is...but, like the scary-buff dudes with veins popping uncomfortably far out, the USD actually got too strong.

In the early 1980s, the USD appreciated 50% relative to the Japanese yen and the German Deutsche mark. Cue: U.S. industry lobbyists begging Congress to do something about it. With the USD being worth so much more than the next biggest economies of the time, the too-strong dollar was running U.S. manufacturers into the ground. Tech companies like IBM...engineering companies like Caterpillar...farmers selling foods...how are they supposed to compete with the super-cheap alternatives being imported? (They aren't; that's why we have bankruptcy laws and job alternatives. Keyword: Java.)

No doubt, the trade balance between the U.S. and Germany, as well as between the U.S. and Japan, was super messed up. The G-5...France, Germany, the U.S., U.K., and Japan...all met up in the Plaza Hotel in NYC to create the Plaza Accord.

The accord decreased the value of the USD relative to the yen and Deutsche to fix that super-big trade imbalance. The result? Well, it did fix the trade imbalance between the U.S. and Germany, but not so much with Japan. That’s because the deal actually made Japan’s imports shift from the U.S. and more toward East Asia, so...awkward.

This led to a second agreement later, the Louvre Accord in 1987. Don’t you Louvre it when solutions create new problems?