Precisely 40 years ago today, on a bright Washington day, I took a phone call from a colleague at the Financial Times suggesting we take the air shuttle to New York for a financial summit taking place at the Plaza Hotel.
A couple of hours later we were at the reception desk, asking where the gathering was taking place.
We were guided to the opulent White & Gold Room on an upper floor. There were no guards or sherpas outside, so we marched in unheeded. In front of us was the towering figure of Paul Volcker, then chairman of the Federal Reserve.
In the corner of my eye, I spied the Chancellor, Nigel Lawson. In a booming voice Volcker said: ‘I think you are in the wrong place,’ and suggested we wait downstairs.
By accident, we had stumbled into a meeting which represented the apotheosis of 20th century financial diplomacy.
The absence of security and media hype points to a different age. The meeting of the Group-of-Five – the US, Japan, West Germany, the UK and France – quietly was orchestrated by then US Treasury Secretary James Baker.
Big shoes to fill: Unfortunately for the world, US Treasury Secretary Scott Bessent is no James Baker (pictured)
His aim was to cap the rise of the dollar. It was still a relatively unsophisticated financial world where the richest nations (Canada and Italy were added later to make up the G7) felt they could take on the world’s currency markets and win.
The hedge funds and trading arms of the biggest investment banks lived in awe of policymakers. Each of the G5 nations committed exchange reserves to a fighting fund designed to knock down the value of the dollar against a rampant yen.
US President Ronald Reagan, Congress and the American people were as much in fear of Japanese economic imperialism then, as they are of China today.
Writer Michael Crichton in his novel ‘Rising Sun’ and the film which followed, reflected the fears of the economic challenge posed by Tokyo.
Stern words at the Plaza and the pledge to intervene forced markets into an adjustment. The yen exchange rate to the dollar plummeted from 240 to the dollar in 1985, to 145 two years later.
Japan signed up to an accord which ushered in the country’s lost decade as the value of equity markets, real estate and assets plummeted.
High-level financial diplomacy followed. The Louvre Accord two years later sought to reverse Plaza after the dollar had plummeted. The G7 became the steering group for the world economy but with each subsequent session it became more ineffectual.
The rise of China, the end of the Cold War, the emergence of fast-growing economic powers in the Pacific and Russia’s temporary accession to free market capitalism shifted the geopolitical dynamic.
If ever there was a moment for resurrection of the spirit of Plaza, it is now. But MAGA suspicion of multilateralism makes it impossible.
The International Monetary Fund pointed out in a blog last week that global debt levels – at 235 per cent of world total output – are at startling levels. As Britain knows only too well, the task of deflating ballooning state debt is politically impossible.
In France, debt is the cause of daily rioting. In the US, debt projections and surging long-term yields alarm analysts.
Unfortunately for the world, US Treasury Secretary Scott Bessent is no James Baker. Trump, huge unregulated private markets and China’s drive for economic hegemony all refuse to be corralled.
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