Plaza Agreement of 1985 and Eurocurrency Market

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Table of Contents

The Success of the Plaza Agreement of 1985
The Eurocurrency Market
References

The Success of the Plaza Agreement of 1985

The Plaza Agreement of 1985 was an important document that was signed by the representatives of the five governments of the United States, Japan, France, West Germany, and the United Kingdom (Thomas, 2013). The essence of that agreement was to depreciate the dollar against the currency of Japan and Germany with the help of the interventions that could be applicable in the forex market (Thomas, 2013). If there is a necessity to understand if the Plaza Agreement was a success, it is important to describe the situation that made the development of the Plaza Agreement possible, to investigate the conditions under which it was developed, and to explain the effects and outcomes of the project.

The beginning of 1985 was characterized by the independent currency policies and the inabilities to understand what power could control the currencies of different countries and create the boundaries that helped to support the idea of balance and equality. It was necessary to develop a new system on the basis of which the exchange rate could be connected with a certain product (e.g. gold). Therefore, the representatives of the five countries gathered at one place and developed the project that promoted the devaluing of the US dollar. The outcomes of the Plaza Agreement could be defined as positive as a low rate of the US dollar could promote the stable world economy and the possibility to control a fast-growing American currency in comparison to other countries’ currencies.

In my opinion, the Agreement of 1985 was a success for the global economy and the development of the international relations on the basis of import and export activities. All countries got the same opportunities. The USD exchange rate was devalued, and the economic politics of other countries were balanced as well. The main benefit of the document was the permission for central banks to interfere with the international trade relations and set the rates that could be appropriate for all countries regardless their current economic situation.

At the same time, if the Plaza Agreement of 1985 could be defined as a successful achievement for the world economy, the same conclusions could be hardly made in regards to the economic situation of the United States. The point is that if the changes were not made, it was hard to predict the possibilities of the United States in comparison to the possibilities of other countries. The United States could become the economic leader. Still, such possibilities could make the United States an aggressor, an economic enemy, and the country with which other countries did not want to develop any kind of relations. Therefore, that decision was a positive step taken by the countries in the Plaza Hotel in 1985.

The Eurocurrency Market

Nowadays, people from different parts of the world have a number of opportunities and options to make their deposits and gain control over their money in case of emergency. The eurocurrency market is the type of money market that is characterized by the possibilities to hold currency in foreign banks and consider legal tender that could be borrowed by those banks. As a rule, some multinational corporations, banks, and fund organizations are the main participants of the eurocurrency market. Kallianiotis (2013) says that it is wrong to identify the eurocurrency market as something connected with Euro or Europe in general. This type of market appeared after the World War II when the Soviet Union was challenged by the outcomes of the Cold War and had to take the actions that could protect its banks against the possible deposits in the United States. The conflict between communism and capitalism was impressive indeed, and the United States could freeze any kind of deposit any time. Therefore, it was importance to expand the market and make sure that other currencies including the yen, the pound sterling, and marks could be offered at the eurocurrency market.

Nowadays, the eurocurrency market is the collection of the banks that could accept the deposits and make loans from the representatives of different countries and use foreign currencies. Eurocurrency turns out to be any convertible currency of a particular country. Investors get chances to consider their short- and long-term claims and use a kind of Eurodollar as the main currency. The peculiar features of this market are the presence of reserved requirements, the possibilities of pay FDIC (Federal Deposit Insurance Corporation) fees, and the chances to control the global competitions different banks could participate in.

In general, the presence of the eurocurrency market cannot be neglected. Eurocurrency markets play an important role in the current financial world because it could help to control a chain of deposits that come from different parts of the world and to reduce the exchange rate risk that could be caused by the current instabilities in economic and political relations between the countries. Banking services become available to all people and the organizations of different types and sizes. Eurocurrency banking has to be developed and improved to make people believe that their deposits and their money are in a safe place and under permanent conditions.

References

Kallianiotis, J. (2013). Exchange rates and international financial economics: History, theories, and practices. New York, NY: Springer.

Thomas, T.M. (2013). Inside the foreign exchange universe. Bloomington, IN: Author House.

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Plaza Agreement of 1985 and Eurocurrency Market

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