Finance History | Palais du Louvre, 22 February 1987 — The Dollar’s Managed Fall Became a Pact for Stability
The Louvre, Global, Earth · 1987-2
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Finance History | Palais du Louvre, 22 February 1987 — The Dollar’s Managed Fall Became a Pact for Stability
kevin
On 22 February 1987, finance ministers and central-bank governors from Canada, France, West Germany, Japan, the United Kingdom, and the United States met at the Palais du Louvre with the managing director of the International Monetary Fund.
Their statement marked a turn in the strategy begun at New York’s Plaza Hotel in September 1985. Plaza had treated an overvalued dollar as part of the problem; at the Louvre, officials judged that the major exchange-rate adjustment had gone far enough.
The participants said their currencies were now broadly consistent with economic fundamentals and warned that further large shifts could damage growth and adjustment. They committed to closer cooperation around prevailing rates while pairing that promise with national policies intended to reduce trade and current-account imbalances.
The agreement therefore reached beyond currency-market intervention. The United States pledged to reduce its federal deficit, Japan promised policies to strengthen domestic demand and cut its discount rate by 0.5 percentage point on 23 February, and European governments set out fiscal, tax, and structural measures of their own.
This was managed floating in unusually explicit form. Governments did not restore fixed exchange rates, but they also rejected the idea that market prices should move without coordinated resistance when those movements threatened shared objectives.
The bargain worked only imperfectly. The IMF later recorded relative exchange-rate stability for part of 1987, followed by renewed pressure after the October stock-market crash; the dollar then fell by close to 7 percent during November and December 1987.
The Louvre Accord’s lasting importance lies in the policy architecture rather than a permanent exchange-rate level. It linked currency stability to fiscal policy, domestic demand, structural reform, and repeated multilateral surveillance.
Inside a former royal palace, six governments made a modern monetary claim: exchange rates could be guided only if national economic policies moved with them.
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