Envisioning the Mar-a-Lago Accord

THE so-called Mar-a-Lago Accord – a term coined by former Credit Suisse economist Zoltan Pozsar back in June 2024 – has recently drawn the attention of economic strategists and policymakers around the world.

Essentially, it is a proposed deal that envisages a concerted effort to weaken the US dollar, potentially as a way to reduce the US trade deficit and boost American manufacturing, which would amount to a reordering of the international monetary system.

It is often framed as a contemporary version of the Plaza Accord – a September 1985 agreement among finance ministers and central bank governors of the G5 countries (France, Germany, Japan, the UK and US) who met at the Plaza Hotel in New York City and jointly agreed on moves to depreciate the greenback.

That agreement is often cited as a prime example of successful US leadership on international monetary issues, and of international cooperation to address those issues.

Forty years later, the US dollar is the global reserve currency because America has, by and large, remained the most dynamic economy in the world, and the US provides stability and security. As a result, there is upward pressure on the US dollar because everyone wants to own the world’s safest asset.

This safe-haven upward pressure on the US dollar overpowers the negative impact on the currency resulting from the US current account deficit, say backers of the proposed new accord. With asset flows putting consistent upward pressure on the greenback, there is a need for a deal to put downward pressure on the US dollar to increase US exports and bring manufacturing jobs back to the US, they suggest.

In short, the argument behind the Mar-a-Lago proposal is that the overvaluation of the US dollar makes American exports less competitive and imports cheaper, contributing to the trade deficit and in the process, to the current account deficit. Hence the need to weaken the US dollar.

Treasury Secretary Scott Bessent has hinted that that could help the administration achieve some of its ambitions, particularly regarding a reduction of the US debt burden and revival of American manufacturing, and as part of a global economic reordering.

Such a deal would try to enlist America’s biggest trading partners and creditors into an arrangement that would see them work together to weaken the US dollar, reduce American borrowing costs and boost more manufacturing-related investment in the US, while maintaining the greenback’s primacy in the global arena.

The proposed Mar-a-Lago Accord assumes that the US will give the G7 nations, the Middle East and Latin America security and access to US markets, and in return, these countries agree to intervene to depreciate the US dollar, grow the size of the US manufacturing sector and solve America’s fiscal debt problems by swapping existing US government debt with new US Treasury bonds.

Hence the US provides the world with security and, in return, the rest of the world helps push the greenback down in order to grow the US manufacturing sector.

But it remains unclear how the proposed accord would operate – and in particular, how to get China to go along with it.

In that context, President Donald Trump would need to secure commitments from America’s trade partners and creditors, including China, to work together to weaken the US dollar, and to do that while ensuring that the selling of dollar-denominated reserves would not push up borrowing costs.

But the tariffs already enacted by the Trump administration, as a tool for helping boost US manufacturing, could cause the currency to strengthen, which in turn discourages companies from manufacturing goods in the US.

One of Trump’s economic aides, Stephen Miran, proposed that one way to engineer a weaker US dollar without driving up US borrowing costs would be for US creditors to agree to swap US bonds held by their central banks for 100-year non-tradeable “century bonds”, with Fed swap lines made available to help meet short-term liquidity needs.

“Such a Mar-a-Lago Accord gives form to a 21st-century version of a multilateral currency agreement,” Miran wrote in a paper on the subject before he was nominated to be chairman of the Trump administration’s Council of Economic Advisers. “President Trump will want foreigners to help pay for the security zone provided by the United States,” he stressed.

According to Miran, a reduction in the value of the US dollar would help create manufacturing jobs in the US and reallocate demand from the rest of the world to America.

At the same time, the “term-out of reserve debt helps prevent financial market volatility”, Miran wrote, concluding that “multiple goals are (would be) accomplished with one agreement”.

The proposed accord does raise several questions: pressing US allies to join the accord could encourage them to search for a substitute for the US dollar, and take steps to reduce their reliance on US markets and defence. That in turn could threaten the global primacy of the US dollar, and a weaker dollar would push up the price of imports and fuel inflation for Americans.

Then there are reasons to consider whether the proposal would deliver the reduced deficits and bring good jobs back to America.

First, unless the US could reduce the Budget deficit, or encourage Americans to save more and consume less, manufacturing investment must be financed by borrowing from abroad, which would make the US dollar stronger, not weaker. The bottom line is that in order to reduce the current account deficit, the US needs first and foremost to borrow less from the rest of the world.

Then the Mar-a-Lago Accord idea, like Trump’s tariffs agenda, will not necessarily bring back well-paying jobs since labour-replacing technology, not international trade, is responsible for the changes in the pattern of employment in the US.

Also, the reserve currency role has allowed the US to maintain a large Budget deficit without suffering higher interest rates or see its currency collapse. The Mar-a-Lago Accord would in fact remove this source of American economic strength or exceptionalism.