LONDON, Sept 29 (Reuters) - Twenty-four years ago this month, policymakers of the Group of Five nations, meeting at the Plaza Hotel in New York, called for depreciation of the U.S. dollar to rebalance the global economy.
The Plaza Accord, signed on Sept. 22, 1985, was followed by concerted central bank intervention to weaken the dollar. A long period of dollar weakness took the U.S. currency down 50 percent versus the yen by the end of 1987.
Two current Reuters staffers, London-based foreign exchange analyst Neal Kimberley and China Economics Editor Alan Wheatley, were involved in the event -- one as a novice currency trader at Continental Illinois bank, the other as a Reuters reporter who covered the accord. Here are their reminisces:
Neal Kimberley:
I'd only been in the dealing room for three weeks when the Plaza Accord was signed. The dollar itself had been losing ground since February so the market was not necessarily prepared for what came next.
Picture the scene if you will. Dealing rooms were sparse affairs, male-dominated and where smoking seemed almost compulsory. There was no e-commerce to speak of, and most business was still being transacted direct by phone or with a voice broker.
If someone shouted "get me calls", everyone had a sort of credit card which we jammed into a machine, which then successively auto-dialled counterparty banks. Banks had agreed relationships, such as guaranteeing a five-pip spread in 5 million dollars on USD/DEM. These spreads were an early casualty of the price action. If you wanted to contact a voice broker, then use of the standard key and lamp switch was essential, with the broker's voice emerging from precariously balanced squawk boxes.
People forget that the day after the accord, Sept. 23, 1985, was a Tokyo holiday, so the full force of the central bank actions rained down on the European market. The Bank of Japan was dealing directly into the major Japanese banks in London, the Bank of England opted to deal direct and through the voice brokers, while the Bundesbank seemed to restrict itself to direct calls to banks.
As they hit the market, all semblance of a normal market evaporated. People were quoting 2-3 big figure spreads in up to USD5 million and still getting hit. If you got hit, you got killed, as the interventions were relentless.
In an era of paper tickets, back offices were continually querying the big figures. USD/JPY fell 12 big figures on the first day. Dealers were too busy to even smoke.
USD/JPY fell 31 big figures in a few weeks and still it went on. It was singularly the most effective piece of currency intervention in the free-floating era.
As a trainee, it was exhilarating; for someone with experience at that time, it must have been earthshattering.
Alan Wheatley:
It was a Sunday evening and we had only two reporters there and did one snap (urgent headline) -- "G5 AGREES A FURTHER ORDERLY RISE IN NON-DOLLAR CURRENCIES IS DESIRABLE" or something like that.
We were in a sweltering corridor -- I remember a thermometer on a TV camera showing 120 degrees -- and the hacks (journalists) went deadly quiet as they ploughed through the communique. The jargon was as stultifying as the air.
Then a murmur started as we stumbled across the famous paragraph and people started asking each other whether that was IT. I don't know whether we filed before the press statements that followed -- one finance minister after the other, no questions taken -- but I recall we found a payphone in the entrance of the Plaza and called in just one that one snap.
Security was light compared with what it is today. One reporter stumbled into the meeting as it was going on, and I remember being able to follow (British Chancellor of the Exchequer) Nigel Lawson into the toilet during a break. I asked him what was happening and he said, 'I'm going for a pee.' Not the leak I wanted...
We went back to the office and I used the peg of the regular Sunday night Credit Market Outlook to do a reaction on what it meant for U.S. interest rates. Believe it or not, we had no separate FX reaction piece as far as I recall. (Editing by Andrew Torchia)