Shaking the foundations: Navigating an era of uncertainty
26 February 2025RISK INSIGHT • 5 MARCH 2024
The Mar-a-Lago Accord: Reimagining America’s monetary influence
Harun Thilak, Head of Global Capital Markets NA
The "Mar-a-Lago Accord" has recently entered the spotlight as a speculative framework for potentially restructuring the global financial system under a Trump administration. Named after President Donald Trump’s Florida estate, this hypothetical agreement draws inspiration from historic currency accords such as Bretton Woods and the Plaza Accord. Although it has not yet been formalised, the idea has recently gained traction and is seen as an attempt to address perceived imbalances in global trade and the strength of the USD. Below, we explore the nature of the Mar-a-Lago Accord, its historical precedents, and its potential impact on the USD.
From Bretton Woods to the Plaza Accord
To understand the Mar-a-Lago Accord, it is first necessary to examine its predecessors. The Bretton Woods Agreement, established in 1944, created a post-World War II monetary order by pegging currencies to the USD, which was itself convertible to gold at a fixed rate. This system aimed to foster stability and rebuild global economies but unraveled in 1971 when President Nixon suspended dollar-gold convertibility, ending the gold standard and ushering in an era of floating exchange rates. The collapse of Bretton Woods highlighted the challenges of maintaining fixed currency regimes amid economic pressures, setting the stage for more flexible interventions.
The Plaza Accord of 1985 offers a closer parallel to the Mar-a-Lago vision. Signed at the Plaza Hotel in New York by the G5 nations (the U.S., Japan, West Germany, France, and the U.K.), this agreement addressed the soaring USD, which had risen by nearly 80% against major currencies since 1980. This sharp rise was largely spurred by hawkish monetary policy under Federal Reserve Chairman Paul Volcker and considerable fiscal deficits during the Reagan administration. The strong USD hurt U.S. exports and fueled global trade imbalances, prompting the G5 to intervene.
Under the Plaza Accord, the G5 agreed to intervene in currency markets and adjust economic policies via coordinated action to depreciate the USD. The result was dramatic: within two years, the USD fell by roughly 40%, resetting some of the US’ trade and currency imbalances. However, this shift also exacerbated issues in other countries, notably Japan, where the stronger yen undermined export-led growth and contributed to an economic downturn.
Chart 1: Historical Chart of Dollar Index (DXY)
Source: Bloomberg
How an unofficial vision might redefine global finance
At the time of writing, the Mar-a-Lago Accord remains a theoretical construct rather than a formalised agreement. It stems from alleged discussions within President Trump’s economic team and recently caught the market’s attention as one of the possible policy options laid out by Stephen Miran (the nominee for the White House Council of Economic Advisers) to address USD strength. The Accord’s core objective is to weaken the USD to boost U.S. export competitiveness and rebalance global trade, potentially by striking deals with one or more key trading partners.
While imposing tariffs could be the starting point to address these imbalances, there is also the possibility of coordinated action—similar to the Plaza Accord—where the U.S. and its major trading partners jointly work to weaken the USD. Another idea which was floated is the potential restructuring of foreign-held U.S. debt into long-term, low-yield securities (for instance, 100-year zero-coupon bonds). These measures could lower U.S. borrowing costs and shift financial burdens, reflecting Trump’s "America First" ethos.
Placing the dollar in the crosshairs
If markets get a sense of possible movement towards the Mar-a-Lago Accord, there could be a profound re-shaping of currency and US Treasury markets. A deliberate USD devaluation would increase volatility as traders adjust to a new FX paradigm. A weaker dollar could bolster U.S. exports by making them cheaper abroad, thereby narrowing the trade deficit—a key objective for Trump. Yet, higher import costs might fuel inflation and diminish American purchasing power.
Trump has consistently maintained that the USD will continue to remain the global reserve currency. However, an explicit policy aimed at eroding the dollar’s value could undermine foreign confidence in the USD and potentially trigger a downward spiral. Meanwhile, forcing foreign holders of US Treasuries to swap out their current holdings for long-term instruments could threaten the free-market functioning of one of the world’s most liquid asset classes, leading to a systemic re-pricing of US Treasury instruments.
Final word on Mar-a-Lago’s potential: promise or peril?
The Mar-a-Lago Accord presents a bold vision to reshape global finance in America’s favour, echoing the ambitions of Bretton Woods and the Plaza Accord. Its success hinges on navigating complex international dynamics in an increasingly de-globalized environment, while avoiding the pitfalls of past agreements. For currency markets, the Accord promises both opportunity and risk—enhancing U.S. competitiveness at the potential cost of inflation and financial instability, and thus merits the watchful eyes of market participants.
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