What gave the Plaza Accord its historical significance was a variety of firsts. It was the first time that central bankers agreed to intervene in foreign exchange markets, the first time the world set target interest rates, the first time for the globalization of economies, and the first time each nation declared itself ready to adapt its own economies. Sovereignty has been exchanged for globalization. Japan has resisted pressure from the United States to link trade to monetary issues. Meanwhile, the deepening trade war between the United States and China is responsible for the increase in market volatility, as investors are frustrated by the blow to the global economy. The Dow Jones industrial Djia fell -0.23% on Monday to more than 700 points and the S-P 500 SPX fell -0.13% the most following a fall of the day in 2019, after China saw its currency in yuan weaken more than expected after Trump announced additional tariffs on imports from China last week. Thus, the world cooperated for the first time by agreeing to revalue the exchange rate system over a two-year period, with the intervention of each country`s central bank in the foreign exchange markets. Target rates have been agreed. The United States recorded a decline in its currency of about 50%, while West Germany, France, the United Kingdom and Japan recorded 50% appreciation. In September 1985, the Japanese yen rose from USD 242/JPY (yen/dollar) to 153 in 1986, a doubling of the yen. In 1988, the USD/JPY exchange rate was 120.
The same was true for the German mark, the French franc and the pound sterling. These revaluations would naturally benefit developing countries such as Korea and Thailand, as well as major South American nations such as Brazil, as trade would resume. Read: Why the “tail risk of a currency war can`t be ruled out” as tensions between the U.S. and China strengthen the U.S. dollar and Trump`s complaints have led traders and economists to consider the prospect of direct U.S. intervention in foreign exchange markets to weaken the dollar, although White House economic adviser Larry Kudlow said last month that the government had ruled out that option. Economists and monetary observers also doubt that unilateral efforts are effective, especially in a global economic context where other major central banks are easing monetary policy in the face of moderate inflationary pressures and growing concerns about economic growth. U.S. President Donald Trump said Monday that the United States has concluded the first trade agreements with Japan on customs barriers and digital trade, which do not require congressional approval. The dollar fell about 40 percent over the next two years, and the trade balance also improved after a typical delay, Harvard Kennedy School economist Jeffrey Frankel recalled in a 2015 paper, as Congress renounced new trade barriers. In fact, global policymakers were so successful that, two years later, in a Paris agreement known as the Louvre Agreement, policymakers agreed to cooperate to outsource the dollar`s fall.