Coordinated Dollar Intervention Is a Long Shot
There are three main reasons top central banks are unlikely to team up to arrest the US currency’s strength as they did with the Plaza Accord in in 1985.
The dollar is gaining strength.
Photographer: Paul Yeung/Bloomberg via Getty Images
The US dollar has surged almost 14% from its low last year in trade-weighted terms. This has led to a huge terms of trade shock (the price of exports compared with the price of imports) affecting any country that imports a lot of energy, which trades in dollars. On top of that, in Europe and the UK, at least, are the very unwelcome inflationary impacts of a rapidly declining currency on inflation rates already at multi-decade highs.
Old market hands have started to mutter about the possibility of central bank intervention to stem the dollar’s broad strength. A few are even starting to wonder whether such intervention might be coordinated, in an echo of the Plaza Accord in 1985, when the then Group of Five major central banks (the US, Germany, France, UK and Japan) agreed to push up the value of their currencies against the dollar. They were so successful that there was a subsequent meeting in France in 1987, dubbed the Louvre Accord, to stabilize the dollar, which had lost a quarter of its value by that point.