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The trouble, of course, is that not all currencies can be weak at the same time: if one is weaker, another must, by definition, be stronger. Likewise, not all economies can improve net exports at the same time: the global total is, by definition, equal to zero. So the competitive devaluation war in which we find ourselves is a zero-sum game: one country’s gain is some other country’s loss.

The first salvos in this war came in the form foreign-exchange intervention. To diversify away from US dollar assets while maintaining its effective dollar peg, China started to buy Japanese yen and South Korean won, hurting their competitiveness. So the Japanese started to intervene to weaken the yen.

This intervention upset the EU, as it has put upward pressure on the euro at a time when the European Central Bank has placed interest rates on hold while the Bank of Japan (BoJ) and the US Federal Reserve are easing monetary policy further. The euro’s rise will soon cause massive pain to the PIIGS, whose recessions will deepen, causing their sovereign risk to rise. The Europeans have thus already started verbal currency intervention and may soon be forced to make it formal.

In the US, influential voices are proposing that the authorities respond to China’s massive accumulation of dollar reserves by selling an equivalent amount of dollars and buying an equivalent amount of renminbi. Meanwhile, China and most emerging markets are accelerating their currency interventions to prevent more appreciation.

The next stage of these wars is more quantitative easing, or QE2. The BoJ has already announced it, the Bank of England (BoE) is likely to do so soon, and the Fed will certainly announce it at its November meeting. In principle, there is little difference between monetary easing – lower policy rates or more QE – that leads to currency weakening and direct intervention in currency markets to achieve the same goal. In fact, quantitative easing is a more effective tool to weaken a currency, as foreign exchange intervention is usually sterilized.
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I really don't understand all this mess about currency wars.  I know that the basic idea is that if a nation currency is too strong, it's bad for its industries because it gives them a competitive disadvantage on international markets.

But to me this just doesn't make sense.  How can someone complain that something is "too cheap" ?  If someone makes very cheap stuffs, I won't complain :  I'll just buy it.  I'll even stop producing and I will borrow money if I need to.  If a money is really "too" cheap, then it's an arbitrage opportunity and one just has to buy it.

That's a really good explanation, hugolp.

So when wages are mostly rising, no problem. When wages try to adjust themselves downward it is forbidden by laws, regs, union contracts, etc. So the only way to get them down is to debase the currency.