Dollar Diplomacy

March 13, 1987

Report Outline
Special Focus

Overview

For the moment, at least, the Paris agreement by six of the world's major industrial power to stabilize exchange rates seems to be working. Since the Feb. 22 meeting in Paris, the dollar has held steady against the Japanese yen and the West German mark, the world's other two most frequently traded currencies, indicating that foreign exchange markets have taken the pact seriously.

The agreement to halt the dollar's plunge came just two years after it reached a peak, at a time when the soaring greenback allowed Americans to see the world on the cheap and develop a taste for luxury imports. But what was good for American consumers was not beneficial for U.S. industry. In early 1985, as the dollar was at its peak, sales of imported cars rose 15 percent in this country, where dollars went further in the purchase of foreign goods because of the American currency's appreciation. But meanwhile, U.S. products languished on foreign markets, where it took more yen, marks and other currencies to buy American.

In early 1985, when Treasury Secretary James A. Baker III undertook the task of reversing the dollar's upward course, and America's trading fortunes, he faced stiff opposition. Even among allies, one country's strong currency is another's ticket to greater prosperity and not something to be given up without a struggle. Seen from Japan and West Germany, the strong dollar was a godsend, allowing their export industries to capture a bigger market share from American producers.

ISSUE TRACKER for Related Reports
U.S. Dollar and Inflation
Oct. 2008  The Troubled Dollar
Feb. 13, 1998  Deflation Fears
Mar. 13, 1987  Dollar Diplomacy
Oct. 14, 1983  Strong Dollar's Return
Jul. 11, 1980  Coping with Inflation
May 16, 1980  Measuring Inflation
Dec. 07, 1979  Federal Reserve's Inflation Fight
Jun. 09, 1978  Dollar Problems Abroad
Sep. 20, 1974  Inflation and Job Security
Feb. 26, 1969  Money Supply in Inflation
Feb. 14, 1968  Gold Policies and Production
Dec. 15, 1965  Anti-Inflation Policies in America and Britain
Mar. 15, 1965  World Monetary Reform
Dec. 02, 1964  Silver and the Coin Shortage
Oct. 17, 1962  Gold Stock and the Balance of Payments
Dec. 15, 1960  Gold and the Dollar
Oct. 10, 1956  Old-Age Annuities in Time of Inflation
Jan. 17, 1951  Credit Control in Inflation
Aug. 10, 1949  Dollar Shortage
Oct. 04, 1943  Stabilization of Exchanges
Jan. 21, 1941  Safeguards Against Monetary Inflation
Mar. 25, 1940  United States Gold in International Relations
Dec. 14, 1937  Four Years of the Silver Program
Oct. 04, 1934  Inflation in Europe and the United States
Jan. 30, 1934  Dollar Depreciation and Devaluation
Sep. 05, 1933  Stabilization of the Dollar
May 29, 1933  Invalidation of the Gold Clause
Mar. 15, 1933  Inflation of the Currency
Oct. 25, 1924  Bank Rate and Credit Control Federal Reserve Policies and the Defaltion Issue
BROWSE RELATED TOPICS:
Currency
Deficit, Federal Debt, and Balanced Budget
International Finance