Brain exercise 1, 2, 3 [Kori Mori]
Koharu Mori Profile
Economist. Affiliated with a think tank (United States). Specializes in exchange-rate policy, monetary policy, macroeconomic policy, and financial regulation. Engages with market participants, financial authorities, and policy officials to analyze currency trends from multiple perspectives.
*This article is a republished and revised edition of an article from FX攻略.com, December 2018 issue. Please note that the market information described in the text may differ from current markets.
In my childhood, I loved reading The Story of the Fauna and often read the children's edition. In upper elementary school, I enjoyed novels by Masao Yokomizu and Hideo Kita. Around that time, I also frequently read Takahiro Tado’s The Brain Exercise. Truly, this book provides excellent mental exercise.
Looking back at exchange rates up to 2018, this year too saw substantial movement in currency rates. Regarding the global economy, I frequently debated with economists about trade wars arising from protectionism. I discussed broadly with an Australian economist who transitioned from central banking to the private sector about the China–US trade war and the global economy’s outlook. As an academic, I have continued a discussion for several years with a university professor on the fate of the yuan, monetary policy and exchange-rate policy, and currency wars. For me, this discussion feels like reading a “currency version of head gymnastics,” and it always excites me.
Unraveling the History of the Dollar
In 1944, under the Bretton Woods Agreement (＊＊), the exchange rate was set so that one ounce of gold equaled 35 U.S. dollars. This fixed the exchange rates by pegging each country’s currency to the dollar, which was on the gold standard. However, in 1971, the fixed exchange-rate system ended with the Nixon Shock, when President Nixon announced the suspension of gold convertibility of the dollar.
Subsequently, in 1985, finance ministers and central bank governors from five major economies (US, Japan, UK, Germany, France) secretly gathered at the Plaza Hotel in New York and announced the historic “Plaza Accord” to correct excessive dollar strength. The agreement called for lifting each country’s currency—yen, pound, mark, and franc—by about 10% to 12% against the dollar, and members conducted coordinated interventions to implement the agreement.
＊ The 44 Allied Nations gathered in Bretton Woods, New Hampshire, United States, to hold a conference on the postwar international monetary system, leading to agreements such as the IMF.
＊＊ “Pegging” means keeping the exchange rate of a country's currency fixed to that of a specific currency, such as the U.S. dollar.
