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A foreign currency broker talks on the phone at a dealing room in TokyoYURIKO NAKAO/Reuters

The great thing about Brazil's ascent to the inner circle of global economic management over the past few years is that its leaders have demonstrated a willingness to stir things up. That's just what happened this week when Guido Mantega, the Finance Minister, declared in Sao Paulo Tuesday that "we are in the midst of an international currency war."

Talk of a currency war creates echoes of the Great Depression. Desperate for a share of whatever global commerce that remained, countries deployed "beggar-thy-neighbour" policies that proved self-defeating.

The protagonists in Mr. Mantega's modern-day rendering of this story are Japan, the United States and China. In September, Japan intervened in foreign exchange markets for the first time in six years to lower the value of the yen; the U.S. Federal Reserve is hinting strongly that it will create money to buy hundreds of billions of financial assets, causing the dollar to weaken; and China is allowing the yuan to appreciate only extremely slowly even though the country's economy is red hot, aggravating U.S. lawmakers in the House of Representatives so much that they passed retaliatory legislation this week by an overwhelming margin.

Mr. Mantega's depiction exaggerates the situation. John Curtis, a former chief economist at Canada's trade department; Wendy Dobson, a former senior international official at Finance; and economists at New York-based investment bank Morgan Stanley were among those who said they see no evidence of an onslaught of competitive devaluations.

Still, Mr. Mantega's warning should be heeded as a clarion call rather than dismissed. The pressure that mismatched exchange rates are putting on the global economic recovery clearly is growing. So is recognition among policy makers that something needs to be done about it.

Foreign exchange rates suddenly are a sensitive issue because there are too many exporters and not enough demand.

South Korea's Sakong Il, who is the chairman of the cabinet-level committee that is preparing next month's Group of 20 summit in Seoul, said Tuesday that "policy makers are talking over the currency issue," predicting a "compromise" when leaders meet Nov. 11 and 12.

But there will be high-level discussions long before Seoul. Jim Flaherty said he will host a meeting of fellow finance ministers and central bank governors from the Group of Seven next week ahead of the annual meetings of the International Monetary Fund and World Bank in Washington.

"Currency issues are major issues in the world," Mr. Flaherty told reporters outside the Commons Wednesday. "They distort trading relationships."

A G7 meeting of the U.S., Japan, Germany, Britain, France, Italy and Canada will take on heightened significance in the current environment because these would be the countries that would lead any co-ordinated intervention to quiet currency markets.

The other problem is that the global recovery is occurring at two speeds. Emerging market economies are powering ahead at a rate of economic growth that would leave their combined gross domestic product bigger than developed countries by 2015, according to the World Bank.

This creates a yawning interest rate gap as the central banks in developed countries leave their benchmark rates at emergency settings to stimulate demand, while policy makers in emerging markets must contend with inflation. The temptation to exploit this gap is too much for traders to ignore. Mr. Mantega's call has rekindled a vigorous debate about what policy makers might do to keep foreign exchange rates from sparking a global trade row that would risk choking the rebound.

Olivier Blanchard, the chief economist at the IMF, last month said policy makers would have to consider if "depreciation of the yen" was necessary to stabilize the global economy. Barry Eichengreen, a professor of economics at the University of California, Berkeley, and a former senior policy adviser at the IMF, proposed this week that the Fed, the Bank of Japan and the European Central Bank embark on a co-ordinated program of asset purchases in an effort to stimulate demand.

Mr. Curtis, who is now a distinguished fellow at the Waterloo, Ont.-based Centre for International Governance Innovation, is pushing for a less formal approach, arguing for moral suasion over risky attempts to collar the foreign-exchange market.

"You want to expose shortcomings and have countries defend themselves rather than beating them over the head," he said.

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