by Chris Black
Here’s how the “free market” works in the real world:
One of the most notable large-scale government interventions in currency markets came in 1985. The value of the US dollar had shot up during President Ronald Reagan’s first term on the back of rising long-term interest rates, reaching its highest-ever level against the British pound.
The administration initially saw this as a tribute to the strength of the US economy, but the drawbacks soon became clear. Reagan came under pressure from US manufacturers who were finding it increasingly difficult to market their goods abroad. Lee Morgan, former chief executive officer at machinery giant Caterpillar Inc., estimated that hundreds of US companies were losing billions of dollars in international orders annually to Japanese competitors because of the stronger dollar.
In September 1985, US central bankers met with their French, German, Japanese, and British counterparts at the Plaza Hotel in New York City. In what became known as the Plaza Accord, they came up with a plan that would drive the US currency down 40% in the ensuing two years until finance ministers signed the Louvre Accord in Paris that ended the effort.
The US dollar's strength has led to a currency war as central banks around the world seek to tame inflation t.co/2e9NYTZFhn
— Bloomberg (@business) June 23, 2022