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This Day In Market History: The Plaza Accord

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Each day, Benzinga takes a look back at a notable market-related moment that occurred on this date.

What Happened: On this day in 1985, France, Germany, the United States, the United Kingdom and Japan signed the Plaza Accord.

Where The Market Was: The Dow closed at 1,297.94 and the S&P 500 traded at 182.05.

What Else Was Going On In The World: In 1985, Live Aid concerts in Philadelphia and London raised more than $50 million for famine relief in Ethiopia. Coca-Cola Co (NYSE: KO) released New Coke. Average monthly rent was $375.

Plaza Accord: In September 1985, finance ministers and central bankers from the U.S., France, Germany, Japan and the U.K. met at the Plaza Hotel in New York City to negotiate an agreement to reduce the foreign-currency value of the U.S. dollar, which had risen to near all-time highs.

By potentially reducing the strength of the dollar, the so-called G-5 nations were attempting to correct trade imbalances between the U.S. and Germany and the U.S. and Japan.

The U.S. pledged to reduce its federal deficit, while Japan and Germany pledged to enact tax cuts to boost domestic demand.

From 1980 to 1985, the value of the U.S. dollar appreciated by 47.9%, pressuring the U.S. manufacturing industry by making imports much cheaper.

For the U.S., the Plaza Accord was a major success. The U.S. dollar depreciated in value by 25.8% in the two years following the agreement, spurring U.S. exports. The Plaza Accord also reduced the U.S. trade imbalances with both Germany and Japan.

In 1987, Canada, France, Germany, Japan, the U.K. and the U.S. signed the Louvre Accord to stop the ongoing decline of the dollar and stabilize exchange rates.

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