Plaza Agreement Essay

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Q1: What was the Plaza agreement of 1985? What was the background that led to this agreement? What was the claim made by the United States against Japan (and West Germany)? What was the consequence? Plaza agreement of 1985 was an agreement that signed by the G-5 nations, which are United States, Japan, France, West Germany and United Kingdom at the Plaza Hotel in New York City to cooperate to weaken the exchange rate of US dollars. From 1970’s to early 1980’s, Japan got its economics gradually play a more and more important role on the world’s economics stage. “Made in Japan” was almost everywhere during that time. Japan also imported a lot of raw materials while exported largely. The imbalance of trading caused deficits and upset the foreign exchange market, especially against America. After the World War II, American political leader committed to promoting international trade by supporting for multilateral organizations such as General Agreement on Tariffs and Trade. They made the international currency markets the Breton Woods system. However, since the Japanese economy grew so fast, the United States was worried to lose the leadership to Japan, which linear projections called as the “superstate”, the world’s largest capital market to boot. On the other side, the United States government was complained by its domestic industry companies during its recession period since Japanese products was very competitive. The United States also wanted to change the situation of its self and broke the imbalance in the trading and also to recover its own economy. United States claimed that Japan should appreciate yen to change the imbalance and unstable currency status. After the Plaza Accord was signed, an extraordinary asset price boom happened with huge painful impact bust. Japan used to be one of the fastest-growing economies during 1960’s to 1980’s. Appreciated yen,
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