The ‘Mar-a-Lago Accord’ – a general idea to attack international trade imbalances by addressing “overvaluation” of the US dollar – is gaining attention among investors and policymakers. While the possibility of a grand deal between the US and its trading partners remains remote, few can ignore the possibility as the stakes are just too high.
It is interesting to ask how Beijing may view such an accord, which to some extent resembles the 1985 Plaza Accord signed by the US, Japan, West Germany, the UK and France. China’s knee-jerk reaction would be “no”, as the 1985 accord had a very bad reputation in China. In the popular perception, the Plaza Accord caused Japan’s asset bubble and the following “lost decades” of economic stagnation. The deal is viewed by many in China as a plot imposed by the US to break Japan’s ascent. As such, China should not repeat what is seen as a historic mistake.
Another argument for China to reject the idea centres on exports. China will not let the yuan gain significant value against the US dollar, as a major appreciation could hurt China’s export sector, where the country desperately needs growth amid weak consumer spending at home.
However, some elements in the Mar-a-Lago Accord idea, which is based on a November 2024 paper by Stephen Miran and named for US President Donald Trump’s Florida residence, echo Beijing’s strategic pursuits. In fact, China has been complaining about an “unfair” international monetary system for decades, and Beijing’s complaints about the US dollar’s dominant position in reserve assets and global finance were particularly loud after the collapse of Lehman Brothers in 2008.
If Washington is trying to devalue the US dollar to weaken the greenback’s pre-eminent role in the international financial system, it could do Beijing a favour. After all, China is clearly unhappy about the “hegemony” of the United States, which is underpinned by the “exorbitant privilege” of the dollar, along with the country’s military and soft power.
Interestingly, China has presented certain “grand vision” proposals to reduce the world’s reliance on the US dollar before. China’s former central bank governor Zhou Xiaochuan suggested in 2009 that a “super sovereign” currency could be created based upon the Special Drawing Rights, an accounting unit at the International Monetary Fund, to replace the US dollar. The proposal received a lukewarm response.
