The world is in the grip of a currency “war”, with leading nations using devaluation to solve economic problems, Brazilian Finance Minister Guido Mantega has warned in remarks reported from Sao Paulo.

“We’re in the midst of an international currency war, a general weakening of currency,” he said in remarks reported by the Financial Times newspaper.

“This threatens us because it takes away our competitiveness.”

Japan, South Korea and Taiwan have intervened recently to pull down the value of their currencies, the newspaper noted, and the dollar has fallen by about 25 per cent so far this year against the Brazilian real. Such a fall increases the price of Brazilian exports on the US market.

The remarks are set against a background of increasing tension notably between the United States and China over the value of the yuan. The United States has complained for years that China has held down artificially the value of its currency, preventing it from rising to reflect the strength of China’s foreign exchange earnings from exporting, notably to the US market.

This came to a head at the end of last week while the UN General Assembly meeting was being held when China’s Premier Wen Jiabao told a business forum in New York that voiced fears of social unrest if Beijing bowed to US pressure.

“If the (yuan) appreciates by 20 to 40 per cent according to requests of the US government, we do not know how many Chinese companies will go bankrupt and how many Chinese workers will be laid off and how many rural workers will go back to their homes and there will be major turbulence in Chinese society,” he said.

In recent weeks, sentiment has grown on financial markets that the United States, which has already hinted at using World Trade Organisation rules to retaliate, may see a fall of the dollar as a way of increasing pressure. Meanwhile, there is strong debate in the United States over whether a new stimulus package would be an appropriate way to give the economy a new boost. New stimulus might also weaken the dollar, some analysts say.

The mismatch between savings and external surpluses built up by some countries and the external deficits in some advanced countries, mainly the United States, together with exchange rates pegged to the dollar, are widely regarded as important causal factors behind the recent global economic crisis.