As if the global downturn hasn't already given the market the beating of its life, it looks as if another almighty bruising stands between now and the next decade. In fact, it could follow us there and beyond too, warns Mike Baghdady.  

For the past few years, the U.S. has accused China of playing dirty in the international marketplace by artificially undervaluing the Yuan, saying it's manipulating its currency by subsidizing its exports.  

Other countries complain they have been pulled into the fray, as victims of a broader battle to remain competitive in a marketplace that has set new rules of engagement via currency manipulation.  

While the U.S. pushes China to raise the value of its currency (so, among other things it can reduce its huge trade surplus with the world's fastest growing economy), Japan, South Korea and Indonesia among others have intervened unilaterally in recent weeks to curb their currencies' advances.  

To manage their trade deficit, the U.S. is proposing to set up a target to rebalance global growth and realign or adjust exchange rates. But there is a growing fear that the current economic recovery is currently too brittle to support such a move, as export growth in many developed and emerging markets is largely due to the comparatively low value of their currencies - a deadlock that may lead the U.S. back to the 'solution' of protectionism.  

Let us not forget that in the 1930s, this same protectionism led to a collapse of trade that set off the Great Depression. And this being mulled, once more, by a country where it will take nine years to replace the U.S. jobs lost during the recession, and with another five million jobs needed for its expanding population.  

The U.S. is surviving by printing more and more currency and through overseas borrowing. It has to impose huge taxes and prick inflated values where and whenever they balloon. Whereas, China has engaged the U.S. in vendor capital, providing the money that helps finance the huge U.S. fiscal and trade deficits, allowing Americans to buy more and more goods with the purported ability to make choices free from fiscal constraints.  

What's it doing with all of this money? The short answer is: saving it. China's reserves have crossed US$2.6 trillion and are growing by almost a billion dollars a day, as they buy U.S. dollars and sell yuan to keep their currency artificially low, with little evidence of movement to the upside.  

The yuan has barely budged against the dollar since June, rising less than three percent, after being fixed for two years before that. China argues that letting the yuan rise any faster would throw its export industry workers out of the domestic labor market, but at the same time, the undervalued yuan has already driven millions of Americans out of work, and Japanese too. Europe has been voicing its own concerns.  

Indeed, there is a chance of the European Central Bank coming out with a Euro quantitative easing package, which may in turn throw fuel onto the fire of a currency war. The Europe crisis could play havoc in the overall markets once more and especially in sectors that have a direct exposure to the Euro region.  

The fact is none of their industries can compete with China's artificially low prices. And trade deficits with China continue to advance as a consequence: in August, the U.S. trade deficit with China hit a record US$28 billion.  

Money and words may well be the only weapons deployed in this war so far, but the collateral damage to the trading allies of the U.S. and China - and to people around the world - is tangible.  

The threat the U.S. is using against these countries is if they don't raise the values of their currencies, the Federal Reserve will continue its policy of quantitative easing: flooding the markets with cheap money and thereby hanging exporting nations who compete with one another.  

Detractors say the Americans' reasoning for China to raise the value of its currency is a smokescreen because the developing nation's underpriced exports aren't really competing with anything the U.S. produces. Either way, when countries try to reduce the value of their currency, they have to do it by buying U.S. dollars, which drives the greenback's value up.  

Japan's central bank has spent billions selling the yen and buying U.S. dollars to try to slow down the rise in its currency. It spent $24 billion for an effect that lasted 72 hours a few weeks ago, and there are reports it is considering doing it again.  

Brazil, too, is preparing more moves to defend its currency. "We are ready to take further measures if there is a new appreciation of the real," said Guido Mantega, the finance minister, in December. "With the situation in Europe under stress we expect to see a continuation of the currency war in coming months."  

So, as traders, we're bracing for another shake-up as we enter the next decade - with turbulence, turbulence and more turbulence forecast across the forex landscape.