Unilateral action by one central bank can, therefore, set off or fuel disputes in other parts of the world.
In this game of three-dimensional chess, countries are forced into tit-for-tat action.
On 27 September, Brazil’s finance minister Guido Mantega warned that the “international currency war… threatens us because it takes away our competitiveness”. Brazil would not stand idly by, he said.
And, so, the cycle of currency intervention threatens to continue.
For Charles Dallara, head of the Institute of International Finance, which represents the world’s big banks, the issue risks setting off a new round of protectionism.
In a letter to the IMF, he urges the world’s leading economies to get a grip on the problem.
“Addressing exchange rate issues should also be a key priority for multilateral negotiations among a core group of major economies,” Mr Dallara wrote.
But the major economies seem in no mood for compromise.
The US said this week that the IMF “has a very important role to play” in trying to get a multilateral cooperation on currency intervention.
Yet US Treasury Secretary Timothy Geithner has vowed to enlist other G20 nations to pressure China to let its currency rise.
