I was on Bloomberg Television's What'd You Miss show yesterday with Joe Weisenthal and Alix Steel. We talked about several issues, including the claim that China has sparked (another) round in the so-called currency wars. Click here to see this Cool Video.

Last week NY Fed President Dudley acknowledged that given macroeconomic considerations, fundamentally driven market forces would probably lead to a weaker yuan. Other central banks like South Korea and the Philippines have recent and did not take any action, including interest rate cuts, that would weaken their currencies to recoup whatever competitiveness advantage China got from the depreciation of the yuan.

Alix asked about Vietnam and Kazakhstan's moves in the currency markets this week. Surely their devaluations show retaliation against China. I am not so sure. This is third devaluation of the Vietnamese dong this year. I cannot speak to timing of the move, but the move itself and the direction of the currency were well in place prior to the fall in the yuan.

The same is broadly true of Kazakhstan's tenge. It was devalued by 20% in February 2014, and with the decline in oil prices, was coming under more pressure this year. The drop in oil prices, which seem only tangentially related to China. The Chinese economy has slowed, but its demand for oil (in volume terms) continues to be strong. The larger driver of the decline in oil prices is coming from supply as production in non-OPEC and OPEC countries remains highs and inventories continue to build.

In the segment, I compare that the agreement at the G7 and G20 levels on foreign exchange to a an arms control agreement. Sovereigns can produce whatever weapons they want. Various agreements set out limits. Countries can use their currencies to seek competitive advantage, but have agreed to refrain from such practices.

It is not so much driven by a moral sense of righteousness or market fundamentalism. It is simply pragmatic. Manipulating currencies is a zero sum exercise, but interest rate manipulation can be a non-zero sum game. Beggar-thy-neighbor currency depreciation takes some other country's aggregate demand. Lower interest rates can reduce the value of a country's currency, as consequence, but the more important transmission channel is through boosting aggregate demand.