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The Louvre Accord (formally, the Statement of the G7 Finance Ministers and Central Bank Governors) was an agreement, signed on February 22, 1987, in
Paris Paris () is the Capital city, capital and List of communes in France with over 20,000 inhabitants, most populous city of France, with an estimated population of 2,175,601 residents , in an area of more than . Since the 17th century, Paris ha ...

Paris
, that aimed to stabilize international
currency markets The foreign exchange market (Forex, FX, or currency market) is a global decentralization, decentralized or Over-the-counter (finance), over-the-counter (OTC) market for the trading of currency, currencies. This market determines Exchange rate ...
and halt the continued decline of the
US dollar The United States dollar (symbol A symbol is a mark, sign, or that indicates, signifies, or is understood as representing an , , or . Symbols allow people to go beyond what is n or seen by creating linkages between otherwise very diffe ...
after 1985 following the
Plaza Accord The Plaza Accord ( ja, プラザ合意) was a joint–agreement signed on September 22, 1985, at the Plaza Hotel in New York City New York City (NYC), often simply called New York, is the List of United States cities by population, most p ...
. It was considered, from a relational international contract viewpoint, as a rational compromise solution between two ideal-type extremes of international monetary regimes: the perfectly flexible and the perfectly fixed exchange rates. The agreement was signed by
Canada Canada is a country in the northern part of North America North America is a continent A continent is any of several large landmasses. Generally identified by convention (norm), convention rather than any strict criteria, ...

Canada
,
France France (), officially the French Republic (french: link=no, République française), is a transcontinental country This is a list of countries located on more than one continent A continent is one of several large landmasses ...

France
,
West Germany West Germany is the common English name for the Federal Republic of Germany (FRG; german: Bundesrepublik Deutschland , BRD) between its formation on 23 May 1949 and the German reunification through the accession of East Germany on 3 October 19 ...
,
Japan Japan ( ja, 日本, or , and formally ) is an island country An island country or an island nation is a country A country is a distinct territory, territorial body or political entity. It is often referred to as the land of an in ...

Japan
, the
United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain,Usage is mixed. The Guardian' and Telegraph' use Britain as a synonym for the United Kingdom. Some prefer to use Britain as shorth ...

United Kingdom
, and the
United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country Continental United States, primarily located in North America. It consists of 50 U.S. state, states, a Washington, D.C., ...

United States
. The
Italian government The Government of Italy is in the form of a democratic republicA democratic republic is a form of government operating on principles adopted from a republic and a democracy. Rather than being a cross between two entirely separate systems, democra ...

Italian government
was invited to sign the agreement but declined.


Background

The Plaza Accord is recognized as the precursor to the Louvre Accord and this deal was struck to depreciate the US dollar for the purpose of exchange rate realignment with the Japanese
yen The is the official currency of Japan. It is the third most traded currency in the foreign exchange market, after the United States dollar and the Euro. It is also widely used as a third reserve currency after the United States dollar and the ...

yen
and German
Deutsche Mark The Deutsche Mark (, "German mark"), abbreviated "DM" or "D-Mark" (), was the official currency of West Germany from 1948 until 1990 and later the unified Germany from 1990 until the adoption of the euro in 2002. In English, it is commonly call ...

Deutsche Mark
, which was agreed upon during the G7 Minister of Finance meeting held in New York in 1985. The United States had a trade deficit while Japan and a few European countries were experiencing a trade surplus along with negative GDP growth. The then U.S. Treasury Secretary
James Baker James Addison Baker III (born April 28, 1930) is an American attorney, statesman, and political figure. He served as White House Chief of Staff The White House chief of staff position is the successor to the earlier role of the Secretary to t ...

James Baker
attempted to address the imbalance by encouraging its trade partners to stimulate their economies so they can purchase more from it. He maintained that if these partners did not grow, he would allow the dollar's continued depreciation. After the Plaza Accord, the dollar depreciated, reaching an exchange rate of ¥150 per US$1 in 1987. By this time, the nominal dollar exchange rate against other currencies had fallen more than 25%. The ministers of the G7 nations gathered at the French finance ministry, then located inside the
Louvre Palace The Louvre Palace (french: Palais du Louvre, ), often referred to simply as the Louvre, is an iconic building of the French state located on the Rive Droite, Right Bank of the Seine in Paris, occupying a vast expanse of land between the Tuileri ...

Louvre Palace
in Paris, to minimize this decline and stabilize it around the prevailing levels. The Louvre Accord may have helped prevent a recession because it stopped the US dollar from decreasing further in relation to other currencies.


Provisions

France agreed to reduce its budget deficits by 1% of GDP and cut taxes by the same amount for corporations and individuals. Japan would reduce its trade surplus and cut interest rates. The United Kingdom would reduce public expenditures and reduce taxes. Germany, the real object of this agreement because of its leading economic position in Europe, would reduce public spending, cut taxes for individuals and corporations, and keep interest rates low. The United States would reduce its fiscal 1988 deficit to 2.3% of GDP from an estimated 3.9% in 1987, reduce government spending by 1% in 1988 and keep interest rates low.


Impact

The US dollar continued to weaken in 1987 against the Deutsche mark and other major currencies, reaching a low of 1.57 marks per dollar and 121 yen per dollar in early 1988. The dollar then strengthened over the next 18 months, reaching over 2.04 marks per dollar and 160 yen per dollar, in tandem with the
Federal Reserve The Federal Reserve System (also known as the Federal Reserve or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a series ...

Federal Reserve
raising interest rates aggressively, from 6.50% to 9.75%.


References

{{Group of 8 Financial history of the United States Group of Eight Foreign exchange market
History of international trade{{Cat main, Timeline of international trade International trade International trade is the exchange of capital, goods, and services across international borders or territories because there is a need or want of goods or services. In most c ...
Monetary policy 1987 in France