The IMF boss Dominique Strauss-Kahn was the latest to warn of an impending currency war yesterday, after the Brazilian finance minister said something similar last week.

Actually, if you are the boss of the IMF, you are far too tactful to talk about a currency war. What Mr Strauss-Kahn said was: “There is clearly the idea beginning to circulate that currencies can be used as a policy weapon.”

He told the FT: “Translated into action, such an idea would represent a very serious risk to the global recovery … Any such approach would have a negative and very damaging longer-run impact.”

Last week, Guido Mantega, that’s Brazil’s Finance Minister, said: “We’re in the midst of an international currency war.” See: Print money, or it’s the end of democracy, says Bank of England man; stop printing money, or it’s trade war, says Brazil

Of course, they are right, or at least there’s a danger they are right.

The US calls China half the names under the sun for manipulating the yuan. For its part, China calls the US the other half of the names under the sun for its policy of quantitative easing (QE).

Then Japan manages to do both. It winds up US politicians by selling yen to try and force the currency down. Then it launches its own QE.

China tries to reduce its purchasing of US bonds, so buys Japanese bonds instead. This pushes the yen up, and Japan responds by buying US bonds.

The US and the UK may well indulge in some more of their own QE, too.

And yet the Eurozone, the one region where demand is creating terrible problems for certain countries, is ignoring QE as if it were allergic to it. Which of course it is. See today’s lead article: Soros predicts deflation spiral on back of German prudence

It may not be a currency war, as such, But it’s all pretty messy. As we said before, the best solution to a problem like this was invented by Keynes in 1944. He wanted a kind of international currency in which surplus countries were pretty much forced to buy from deficit countries. His plan was rejected by the US, but the best solution to today’s problems may well lie in a revamped version of the Keynes plan.

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