American and Chinese officials traded blows over the weekend, setting the stage for a tense G20 summit next month. The head of China’s central bank rejected the idea of a big revaluation for the yuan, advocating a slow-acting “herbal medicine” instead. Treasury Secretary Tim Geithner took a swipe at countries with “significantly undervalued” currencies, of which China is an obvious example.

 

The United States claims to be a loser in the currency wars. But in reality it is winning. The dollar has fallen sharply against most of its trading partners’ currencies. On a trade-weighted basis, the dollar is the lowest it has been all year, according to the Federal Reserve major currencies index. The likelihood of an imminent bout of money-printing can keep that trend going for a long time.

 

China, meanwhile, claims not to be a winner. But that is disingenuous too. While the yuan just hit its highest level versus the dollar since officially abandoning its dollar peg in 2005, it has fallen heavily against most other currencies. The euro, the currency of China’s biggest trading partner, has strengthened 14 percent against the yuan. The Japanese yen is not far behind. Various emerging markets, such as Brazil, have also seen their currencies soar.