RBS has produced a handy guide for those that believe the current currency fracas this year will morph into what it calls something more internationally combustible in other words a global currency war.
As the bank notes, more countries are intervening, more are fiddling around with currency pegs and many are hiding behind a macro prudential flag of convenience to lend legitimacy to currency manipulation.
There cannot, of course, be multiple winners of this game, says David Petitcolin, global currency strategist at RBS.
So, which countries can put their money where their mouths are, and which countries rhetoric against currency strength can be followed up with action?
To identify the potential players and winners in any global currency war, RBS created composite scores to measure countries relative intention to weaken their currency and their capacity to do so. The bank calls them the relative intervention intentions (RII) and the relative intervention capacity (RIC) scores.
RII is governed by the openness of a countrys economy, export growth and real effective exchange rate (REER) valuation. Of course, intentions rise with increasing weight of exports in an economy and a less competitive REER.
RIC measures the scope a country has to weaken its currency without damaging its economy. That is constrained by the deviation of a countrys inflation rate from its target and the size of its external debt.
The results are set out in the chart below, with countries most likely to act against strength in their currency those which combine with the highest intention to intervene with the highest capacity.
It turns out that Indonesia, Thailand, Malaysia, Chile and surprisingly Sweden which has no recent history of intervening in SEK are the most willing and able to intervene. At the other end stands the UK and New Zealand, which are among the least willing and able to step into the currency market, according to RBS.
Also, countries such as Hungary might rail against currency strength, but inflation and debt constraints mean they are unlikely to be able to keep up a sustained campaign to weaken their currencies. In contrast, MXN bulls can take heart: Mexico has the wherewithal to sustain an intervention campaign, but it lacks the motivation.
Interestingly, while Chinas capacity to intervene might be high its external debt burden is minimal and inflation moderate its willingness to intervene is tempered by resilient export growth and the relatively small weight of exports in GDP.
Also, the analysis suggests a weak JPY is not the cure-all that will turn the Japanese economy around.
Indeed, Petitcolin says for all the print unlimited yen hype in Tokyo, Japans quest for growth and inflation cannot really be led by intervention to weaken the yen per se, as exports are a small share of the economy.
A weaker yen can be a highly acceptable consequence of other policy action by the Japanese, but its not a compelling lead objective in itself, he says.