PARIS — It hasn't been declared officially. But if you really take stock of the political atmosphere, it certainly looks like a currency war is afoot.

Donald Trump and his administration rarely miss an opportunity to lash out at the undervaluation of the Chinese currency. They accuse Beijing of artificially devaluing the yuan to counter the effects of the trade war between China and America. China along with many economists insist that these attacks on the yuan are unfounded, that the yuan is not far from its intrinsic value. But their defense doesn't matter, because the U.S. president has made his attacks on China a personal vendetta. And as a mid-term elections approach in the United States, Trump is firing off even more aggressive tweets against the Chinese regime.

While the currency war has not been stated openly, it is occurring behind closed doors. IMF member countries and G20 finance ministers met last weekend in Bali to discuss the issues and to try to remedy the damage. They admit that they are unable to solve the problem. 
It was Great Britain who made the first, decisive move.

Interestingly, this dire situation reminds us of similar events — in the 1930s. In June of 1930, the United States launched hostilities on the trade front with the Hawley-Smoot Act, which increased customs duties on imports of more than 20,000 goods. Several countries launched retaliatory measures, such as trade barriers, that soon spread throughout the world economy and compounded the impact of the Great Depression.

Willis C. Hawley and Reed Smoot in April 1929 — Photo: National Photo Company

On the monetary front, it was Great Britain that made the first, decisive move, by abandoning the gold standard in September of 1931. The pound fell by 40% against the dollar. The United States and Japan responded by also abandoning convertibility. France, on the other hand, took the lead in a "gold bloc" of European countries, whose currencies became more and more overvalued.

If we compare 1930s Britain with today's China, and the "gold bloc" with the euro zone, then we get an idea of the threat we currently face. Of course, the end of this story has yet to be written. But the events of the 1930s show us that trade tensions and monetary disorder are all the more dangerous when they feed on short-sighted policies and the failure of international cooperation. So here we are ... and now we wait.

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