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The Plaza Accord was an agreement in 1985 among the governments of the United States, Great Britain, France, West Germany, and Japan to systematically devalue the US dollar against other major currencies via the intervention of central banks into international currency markets. It was one of the most significant events in the recent history of the international monetary system and had major political and economic consequences throughout the world.

In the late 1970s, in the aftermath of the Oil Shocks, the United States entered a period of stagflation, or low economic growth with high inflation. This unbearable state of affairs led American voters to become so desperate that they elected actor Ronald Reagan to the presidency. Reagan's new treasury secretary, Paul Volcker, successfully ended the inflation by jacking up interest rates to massive, almost unprecedented levels, but at the cost of plunging the US economy into a deep recession, with very high unemployment.

Because interest rates were so high, the US dollar rapidly began to appreciate, which only worsened the recession. From 1980 to 1985, the US dollar appreciated by approximately 50% against the pound, the yen, and the deutschmark, an astonishing figure. US exporters found themselves priced out of market after market by the strong dollar. Meanwhile, foreign exporters, most notably Japan, found it increasingly easier to out compete US companies on American soil, as the strong dollar and the relative weakness of their own currencies allowed them to undercut prices.

Finally in desperation, major US corporations began calling for a return to 19th-century style protectionism, and congressmen duly began introducing all manner of protectionist legislation. In order to head off this situation, the Reagan administration initiated talks with the other economic great powers to arrange a systematic devaluation of the dollar by having the central banks sell dollars and buy the other currencies. Under tremendous pressure from the United States, the other four nations signed the Plaza Accord on September 22, 1985 at the Plaza Hotel in New York City.

The result was dramatic. From 1985 to 1987, the dollar plunged 50 percent against the other currencies, roughly back to original, 1980 levels. When currency speculation continued to accelerate the dollar's decline even after central banks withdrew from the market, the powers actually had to step in and sign the Louvre Accord in 1987 to halt the decline. But the Plaza Accord had achieved its mission, and the US dollar was back in devaluation mode.

The biggest winner in the aftermath of the Plaza Accord was US industry, which got another few years of de facto protectionism before the realities of better production methods overseas and nimbler foreign competitors would finally come home to roost. The biggest loser was Japan. In exchange for official recognition that it had fully arrived on the scene as an economic great power, Japan was saddled with a strong currency that threatened to derail its export-dependent economy. In response, the Japanese government began taking steps to keep the good times rolling by inflating one of the largest asset bubbles history has ever seen. The resultant collapse of Japan's "Bubble Economy" in the early 1990s cut the market cap of Japan's economy in half and initiated a period of "lost decades" from which Japan is arguably still attempting to emerge.

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