{
  "title": "Address by Michel Camdessus",
  "publication": "IMF News, October 23, 1995",
  "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/53/spmds9516",
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  "summary": "Given at the Japan Center for International Finance (JCIF), Tokyo",
  "publishDate": "1995-10-23",
  "sections": [
    {
      "heading": "Context and purpose",
      "content": "- Speaker: Managing Director of the International Monetary Fund, Michel Camdessus.\n- Occasion: Given at the Japan Center for International Finance (JCIF), Tokyo, October 23, 1995.\n- Focus: Stability of foreign exchange rates and the international monetary system; assessment of the Plaza Agreement a decade on; implications for G-7 policy coordination and the role of the IMF."
    },
    {
      "heading": "Plaza Agreement: achievements and enabling conditions",
      "content": "- Key achievements attributed to the Plaza Agreement:\n  - Helped convince the market that exchange rates—and in particular, the value of the U.S. dollar—were not consistent with economic fundamentals and that the G-5, and particularly the U.S., were determined to correct this misalignment.\n  - Contributed to an orderly adjustment of exchange rates—the much hoped for \"soft landing\" of the dollar.\n- Conditions that made the Plaza Agreement possible:\n  - A clearly identifiable threat: by late 1984 and early 1985, the value of the dollar was \"obviously unsustainable\" with substantial risk of a disorderly correction.\n  - Widening external imbalances: U.S. deficit and Japanese and German surpluses; mounting protectionist sentiment in the United States; inflationary pressures elsewhere.\n  - Recognition of economic interdependence among the G-5, producing willingness to account for other countries' circumstances in domestic policy formulation.\n  - Broad consensus on the role of exchange market intervention, including endorsement of the Jurgensen Report conclusion that \"under appropriate circumstances, market intervention was a useful instrument of exchange rate policy.\"\n  - A sense of common purpose and responsibility among the Five."
    },
    {
      "heading": "Subsequent G-7 coordination episodes and lessons",
      "content": "- Continued G-5/G-7 solidarity through:\n  - Tokyo Summit, May 1986: use of objective indicators to assess economic performance.\n  - Louvre, February 1987: agreement that exchange rates were broadly in line with fundamentals and attempt to stabilize currencies within \"reference ranges.\"\n- Noted shortcomings:\n  - Insufficient emphasis on macroeconomic discipline to underpin exchange rate stability objectives.\n- Illustrative episode: April 1990\n  - Japanese stock prices plummeted and yen declined after the bursting of Japan's \"asset-price bubble.\"\n  - G-7 statements in Paris and Washington helped halt the yen's decline and launch a substantial recovery in the yen's value."
    },
    {
      "heading": "Erosion of G-7 coordination: identified causes",
      "content": "- Reorientation to domestic priorities:\n  - U.S.: recovery from the 1989-91 recession.\n  - Japan: management of its financial crisis.\n  - Germany: unification.\n  - Result: G-7 members increasingly \"looked inward,\" reducing scope for cooperation.\n- Globalization and scale of financial markets:\n  - Increased size and agility of international financial markets made coordinated intervention more difficult and contributed to skepticism about monetary authorities' ability to influence exchange rates.\n  - Central bank survey preliminary results suggest that over the last three years, average daily turnover may have increased by as much as 50 percent to well over $1 trillion.3\n- EMS crises of 1992 and 1993:\n  - Events: the pound and the lira left the ERM, the Spanish peseta was devalued, and ERM exchange rate bands were widened considerably.\n  - Effect: illustrated danger of overreliance on exchange rate schemes without sufficient economic policy fundamentals; led markets to conclude intervention had limited power—spillover effect on G-7 coordination."
    },
    {
      "heading": "1995 developments and renewed coordination",
      "content": "- A major misalignment in 1995: an overvalued yen clearly identifiable and in common interest of G-7 countries to correct.\n- Supporting developments cited:\n  - June data suggesting resumption of U.S. growth after a sluggish second quarter.\n  - Evidence that pace of recovery in Germany had slowed during first half of the year.\n  - Moves by Japanese authorities to ease short-term interest rates and liberalize rules for holding foreign currency assets.\n  - Progress in U.S.-Japan trade negotiations.\n  - Prospects for further fiscal consolidation in the U.S.\n- Result: coordinated intervention by major central banks surprised the market and reinforced the dollar's modest recovery."
    },
    {
      "heading": "Key statistics and historical figures preserved",
      "content": "- Market turnover: \"over the last three years, average daily turnover may have increased by as much as 50 percent to well over $1 trillion.\"3\n- Global financial expansion examples (as cited from Alan Greenspan):\n  - World trade in nominal dollars increased by about 125 percent between 1983 and 1993.\n  - Stock of cross-border assets held by banks grew by 250 percent over the same period.\n  - Annual issuance of international securities increased by 300 percent between 1984 and 1994.\n- References and dates cited in the address:\n  - Jurgensen Report: March 1983 (Report of the Working Group on Exchange Market Intervention).\n  - Versailles Summit: June 4-6, 1982.\n  - Financial Times citation: September 20, 1995, p. 1."
    },
    {
      "heading": "Policy recommendations and prescriptions",
      "content": "- Reassert G-7 international leadership:\n  - Move beyond modest policy cooperation toward the more rigorous requirements of policy coordination.\n  - Recognize the \"different world\" of greater trade and capital flows where exchange rate misalignments have a more profound effect on domestic growth and prosperity.\n- Build on the August 1995 achievement:\n  - Acknowledge that when the market drove the yen to about ¥80 to the dollar it was \"beyond all reasonable relationship to economic fundamentals.\"\n  - Assessment of current misalignments (1995): \"the U.S. dollar continues to look a little weak against the deutsche mark and closely linked European currencies, as well as against the Japanese yen.\"\n  - Suggested aim: induce some further correction of the dollar against the DM and the yen, or at least resist a significant depreciation of the dollar from present levels.\n  - For credibility, secure the fundamental conditions for a stronger dollar and more realistically valued yen over the medium and longer term:\n    - United States and several other countries: accelerate fiscal consolidation.\n    - Japan: continue to open up the economy; boldly reduce the still very high current account surplus through an increase in support for ODA and reform programs in developing countries; strengthen the financial sector and support domestic economic recovery.\n    - Other countries: accelerate structural reform, especially in labor markets.\n    - All countries: aim toward a greater degree of domestic price stability.\n  - Continue signaling exchange rate views to the market and, if needed and in appropriate circumstances, back them up with coordinated intervention.\n- Strengthen relations between the G-7 and other major players:\n  - Recognize that the number of countries with potentially global impact has increased; relations between the G-7 and other major players need to be strengthened.\n- Expand and better use IMF machinery:\n  - The IMF's attributes: virtually universal membership of 180 countries, mandate \"to promote exchange stability,\" and unique staff expertise.\n  - Suggestions for IMF use:\n    - Draw more heavily upon the Fund's analysis of exchange rates and macroeconomic policies.\n    - Use the Fund's technical resources and improved data/timeliness to enhance its \"early warning system.\"\n    - Utilize the Interim Committee as a global forum for regular, frequent, frank, and timely discussions on macroeconomic policy and exchange rate matters."
    },
    {
      "heading": "Concluding stance",
      "content": "- Caution against premature return to Louvre \"reference ranges\" but encouragement to pursue achievable objectives:\n  - \"I do not believe that the time is ripe for a leap beyond the 'reference ranges' embodied in the Louvre Accord...\"\n  - Nonetheless, \"Enhanced international monetary coordination and exchange rate stability are, in my view, two such objectives—and ones that the IMF stands ready to assist the G-7 and other countries in achieving.\"\n\nAddress by Michel Camdessus, Managing Director of the International Monetary Fund, Japan Center for International Finance (JCIF), Tokyo, October 23, 1995.\n\n---\n\n\n References\n\n- Germany and the IMF\n- Japan and the IMF\n- United States and the IMF\n- Speeches\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/53/spmds9516"
    }
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    "Published: October 23, 1995",
    "Speaker: Managing Director of the International Monetary Fund, Michel Camdessus.",
    "Occasion: Given at the Japan Center for International Finance (JCIF), Tokyo, October 23, 1995.",
    "Focus: Stability of foreign exchange rates and the international monetary system; assessment of the Plaza Agreement a decade on; implications for G-7 policy coordination and the role of the IMF.",
    "Key achievements attributed to the Plaza Agreement:",
    "Conditions that made the Plaza Agreement possible:",
    "Continued G-5/G-7 solidarity through:",
    "Noted shortcomings:",
    "Illustrative episode: April 1990",
    "Reorientation to domestic priorities:",
    "Globalization and scale of financial markets:",
    "EMS crises of 1992 and 1993:",
    "A major misalignment in 1995: an overvalued yen clearly identifiable and in common interest of G-7 countries to correct.",
    "Supporting developments cited:",
    "Result: coordinated intervention by major central banks surprised the market and reinforced the dollar's modest recovery.",
    "Market turnover: \"over the last three years, average daily turnover may have increased by as much as 50 percent to well over $1 trillion.\"3",
    "Global financial expansion examples (as cited from Alan Greenspan):",
    "References and dates cited in the address:",
    "Reassert G-7 international leadership:",
    "Build on the August 1995 achievement:",
    "Strengthen relations between the G-7 and other major players:",
    "Expand and better use IMF machinery:",
    "Caution against premature return to Louvre \"reference ranges\" but encouragement to pursue achievable objectives:",
    "[Germany and the IMF](http://www.imf.org/external/country/DEU/index.htm)",
    "[Japan and the IMF](http://www.imf.org/external/country/JPN/index.htm)",
    "[United States and the IMF](http://www.imf.org/external/country/USA/index.htm)",
    "[Speeches](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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