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Back then, as part of its three-part plan ,the U.S. had enacted policies to help Japan regain its former glory, including the open access to U.S. market and a weaker, more accessible Yen. Japan’s knowledge and ingenuity allowed them to build an industrial base as good as that of the yankees, yet with each dollar pegged at approximately 386 Yens they could produce similar goods at one third or even a fourth of the price. Taking advantage of the economic roar of the mid 1900’s, Japan exported their way in cars and electronics into becoming an economic powerhouse, directly damaging the U.S. market, who at the time had a strong dollar and therefore severe issues when competing in the global market.
By 1980, right on the other side of the globe, the United States of America was entering a recession.
And while the US needed Japan to remain capitalist,
they still didn’t want it with an army again.
On September 22, 1985, at the Plaza Hotel in New York City, between France, West Germany, Japan, the United Kingdom, and the United States, the Plaza Accord was signed. It was meant to depreciate the U.S. dollar in relation to the French franc, the German Deutsche Mark, the Japanese yen and the British pound sterling by intervening in currency markets in order to even the economic playfield. To the US, this meant the dollar would be more accessible to the foreign market; to Japan, a rise of over 13% in the yen’s value overnight.
To the trained eye, this meant chaos. It had been only twelve years since the Bretton Woods system, the “Golden Standard”, had ended. Back then, currency was backed up by something tangible and measurable which was gold, and therefore money was but a representation of said physical gold that was in a bank- now without those constraints, speculation could run rampant. Every country was free to give value to its money in its own non-tangible, non-measure way, faith itself had become proof. At first, it was expected that the free market itself would balance out the value of each currency, that the good old law of offer and demand would keep everyone on the table.
That didn’t happen.
