Harpel Professor of Capital Formation and Growth, Harvard Kennedy School, Harvard University
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The paper reviews an event of 30 years ago from the perspective of today: a successful G-5 initiative to reverse what had been a dangerously overvalued dollar. The “Plaza Accord” is best viewed not as the precise product of the meeting on September 22, 1985, but as shorthand for a historic change in US policy that began when James Baker became Treasury Secretary in January of that year. The change had the desired effect, bringing down the dollar and reducing the trade deficit. In recent years concerted foreign exchange intervention, of the sort undertaken by the G-7 in 1985 and periodically over the subsequent decade, has died out. Indeed the G-7 in 2013, fearing “currency manipulation,” specifically agreed to refrain from intervention in a sort of “anti-Plaza accord.” But the day will come when coordinated foreign exchange intervention is again appropriate.
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