The phrase “currency war” speaks to a seemingly phoney battle between the world’s major trading powers over the price of exports. It has all the attributes of an illusory conflict because no one ever agrees that a genuine dispute has taken place. And as long as everyone denies they have drawn swords to slash their currency to compete with rival powers, talk of a war fizzles and dies.

There is a fringe constituency of analysts who have long argued that, much like the hundred years’ war of intermittent battles between England and France, currency wars make headlines only when there is a lurch in policy, which is the equivalent of deploying archers and unleashing the cavalry.

China’s decision to set its benchmark for the yuan at a five-year low is such a moment. It makes clear what has been true since last August, namely that the Communist leadership believes it needs a low-valued currency to help bail out its ailing export industries. The problem is that everyone wants to use the same trick.

Beijing’s decision followed a similar deployment by the European Central Bank, which last January amassed all its weapons to drive down the value of the euro. The ECB’s reluctant move came after the Japanese central bank did something similar a year earlier.

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And going back to the height of the financial crisis, the worst-hit economies – the US and Britain – expended vast resources driving down the value of their currencies. In each case, policymakers denied their currency was even a minor concern. The funds, they said, were spent to boost inflation, reduce unemployment or rescue banks in need of cheap loans.

Yet these disavowals are hollow and fit a growing trend for policymakers to simply deny the effects of their proposals if they believe them to be politically unpalatable.

The ECB boss, Mario Draghi, needed a low-value euro after his other efforts to increase growth failed. And it worked, at least in the first year of operation. As soon as he started pumping €60bn (£45bn) a month into the eurozone economy, the value of the euro tumbled and exports grew. The latest figures, showing the recovery remains on track, are almost solely the result of the weak euro boosting Italian, Spanish and French exports.



Tokyo was a little more honest when its central bank started to print money. In 2013, the incoming central bank boss, Haruhiko Kuroda, was given the explicit task of driving down the value of the yen by the prime minister, Shinzo Abe, as part of a three-arrowed scheme to increase growth.

Now the value of the yen is climbing as China devalues. American multinationals are lobbying Congress to complain about the high value of the dollar and British business groups argue that the UK’s recovery is cooling as a result of the high pound against the euro.

This is a war by other means and it has a direct impact on millions of workers in export industries, who find themselves protected or vulnerable, depending on which side they find themselves.

For instance, Germany’s biggest union, IG Metall, last year agreed a 3.4% wage rise for 2016 covering the 3.7 million workers in the country’s metals and engineering sector. More broadly, hourly wages rose 3.1%. UK manufacturing staff, stuck in the trenches on the other side of the pound/euro divide, face layoffs, short-time working and low wage rises.

The relative merits of German as opposed to UK production techniques are less important when the currency has fallen 20% in value in just two years, making German cars, fridges and vacuum cleaners cheaper. The balance of trade before Draghi started spending was already skewed heavily in Germany’s favour. That situation is only going to get worse.

So far, the UK authorities have refused to act. But they may need to do something if manufacturing is to be saved.

Admittedly, the US is making the situation worse for its exporters by raising interest rates, which in turn is encouraging more money to pour into its banks from around the world and increasing demand for the dollar, which will raise its value. US manufacturers, which have seen domestic demand soar and are sitting on huge piles of cash, have been told to grin and bear it.

UK businesses are not in the same position. Like their US counterparts, they profited from years of a low currency, and still do in relation to the dollar. But their long-term prospects are more likely tied to trade with the EU and investment decisions are more finely balanced. It won’t take much more inaction from the Treasury and Bank of England for businesses to consider expanding production in other parts of the world, and not from a location that prices their goods out of the global marketplace.