A YEAR ago Brazil's finance minister, Guido Mantega, declared that the world had entered into a “currency war”. He worried that in a depressed global economy, without enough spending to go around, countries would sally forth and grab a bit of extra demand for themselves by weakening their currencies. The dollar, for example, fell by 11% against Brazil's real in the year to August 2011, much to the chagrin of Brazil's manufacturers. Like other emerging economies it fought back by imposing taxes and other restrictions on foreign purchases of local securities.

But the invasion of foreign capital that so worried Mr Mantega has now turned into a shambolic retreat. The outflows have dragged down the exchange rates of almost every emerging economy since the beginning of August (see chart 1). Having spent much of the past year fretting about their currencies' rise, central banks across the emerging world have now intervened in the markets to slow their currencies' fall. In a currency war, where each side fights to gain competitiveness against the others, these tumbling exchange rates presumably count as victories. But they are Pyrrhic. That term originates with the Greeks—Pyrrhus was a Hellenistic general whose victories against Rome came at a grievous cost to his own side. The Greeks are also partly responsible for more recent reversals. As the government in Athens teeters on the brink of default, investors have begun to doubt the creditworthiness of other euro-zone governments, as well as the banks that lent to them. The gathering unease has left global investors less willing to tolerate the risks associated with volatile emerging economies. Indeed, some are unwilling to tolerate risks of any kind (see Buttonwood). They are accumulating cash by selling other assets, from gold to Thai equities, more or less indiscriminately. An index of emerging stockmarkets prepared by MSCI has fallen by over 20% since August 1st, despite a rally on September 27th. The worry now is that bonds will follow suit. Foreign investors hold a third of the local-currency debt issued by Indonesia, Korea, Malaysia, Mexico, Poland and Turkey. In a conference call, Bhanu Baweja of UBS worried that the stomach-churning developments in Europe and America might prompt these investors to “puke” up their bondholdings. A cheaper real, zloty and rupee will help emerging economies win a bigger share of global spending. But that is small consolation if global spending declines. The volume of exports from Latin America and Asia did not surpass its pre-crisis peak until the first quarter of this year, according to the Netherlands Bureau for Economic Policy Analysis. And foreign sales are bound to fall again as America stagnates and a two-speed Europe converges on a single, slower pace.

Falling export orders was one of the complaints voiced by Chinese manufacturers in a preliminary survey of purchasing managers published by HSBC last week. The survey showed manufacturing shrinking from the month before (see chart 2), adding to the gloom on world markets. But HSBC's China economist, Qu Hongbin, believes GDP will still grow at an annual pace of 8.5-9% in the second half of this year. China's economy is not as dependent on exports as it was, he points out. International trade (exports minus imports) contributed a little less than nothing to the country's growth in the first half of this year. And imports have remained strong: in the traumatic month of August, China imported 30% more (in dollar terms) than it bought a year before.