Written by:
Shali Zhu

A Look at Past Currency Turmoil

Normally, college students don’t need to worry about currency exchange rates; we use money to buy everyday goods and services, not to trade in global markets. A currency war, however, would be a different issue. From hyperinflation to protectionism to global economic crisis, the possible consequences of a race to devalue would be felt close to home. With all the recent upheaval surrounding the yuan, the official currency of China, it is worth taking a look back at the currency turmoil of the past and gaining some perspective about how those concerns were dealt with on an international level.

The two most recent cases of currency disagreements were centered on the Japanese Yen and the Deutsche Mark. The Japanese Yen was blamed for having an undervalued currency in the 1970s and early 1980s. Like China today, the Japanese government and business people in the 1970s were concerned that Japan’s export growth would be damaged by a rise in the value of the yen, causing Japanese products to be less competitive. To try to combat this issue, the government interfered heavily in the foreign exchange markets. The Deutsche Mark had also been a target for currency manipulation criticisms. According to Hao Li of the International Business Times, Germany was accused of devaluing its currency by including countries that had lower wages than itself in the currency-bloc.

The concerns surrounding the yen and the mark were eventually addressed in the Plaza Agreement, otherwise known as the Plaza Accord, in September 1985. In the legislation, the United States, France, Japan, United Kingdom, and what was then West Germany agreed to intervene in the foreign exchange markets and bring about the appreciation of the Japanese Yen and the Deutsche Mark relative to the USD.

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